Unit I Free Response Questions

Directions: In answering the following questions, you should emphasize the line of reasoning that generated your results; it is not enough to list the results of your analysis. Include correctly labeled diagrams, if useful or required, in explaining your answers. A correctly labeled diagram must have all axes and curves clearly labeled and must show directional changes.Use a pen with black or dark blue ink.

1.In the ancient country of Roma, only two goods, spaghetti and meatballs, are produced. There are two tribes in Roma, the Tivoli and the Frivoli, each with equal amounts of resources and technology. By themselves, the Tivolieach month can produce either 50 pounds ofspaghetti and no meatballs, or 30 pounds of meatballs and no spaghetti, or any combination in between. The Frivoli, by themselves, each month can produce 30 pounds of spaghetti and no meatballs, or 40 pounds of meatballs and no spaghetti, or any combination in between.

Assume that opportunity costs are constant.

a.Draw two correctly labeled diagrams showing the monthly production

possibility frontier for:

i.Tivoli

ii.Frivoli

b.Which tribe has absolute advantage in spaghetti production, and which has

absolute advantage in meatball production? Explain how you determined your answer.

c.Which tribe has comparative advantage in the production of spaghetti, and

which has comparative advantage in production of meatballs? Explain how you determined your response.

d.With specialization and trade between the tribes, which tribe will import

spaghetti?

e.Assume the tribes trade and 1 pound of spaghetti is exchanged for 1 pound

ofmeatballs. Explain why both tribes would benefit from this arrangement.