1. A worker in Rhode Island can produce 1 pound of corn in 15 minutes and 1 pound of shucked oysters in 10 minutes. A worker in South Carolina can produce 1 pound of corn in 20 minutes and 1 pound of shucked oysters in 60 minutes. Which state’s worker has an absolute advantage in corn and which state’s worker has an absolute advantage in shucked oysters? Which state has a comparative advantage in corn and which state has a comparative advantage in shucked oysters? At what price will trade occur between the two states for corn and at what price for oysters? Explain your answers.
2. We discussed the possibility that a start up firm in San Francisco plans to 3-D print Rhinoceros horns that are indistinguishable from real horns. Assume they are able to produce these horns cheaply. If successful, what will happen to the market price and quantity of horns in the market? (real and 3-D printed are sold in one market for “horns”) Explain your answer thoroughly.
3. Suppose the price elasticity of demand for heating oil is 0.2 in the short run and 0.7 in the long run. If the price of heating oil rises from $1.80 to $2.20 per gallon, what happens to the quantity of heating oil demanded in the short run? In the long run? (Use the midpoint method in your calculations) Why might this elasticity depend on the time horizon?
4. If there is a sudden improvement in the production of heroin and cold medication (the production of both products are improved by the same amount) how will the changes in the market differ? Provide a detailed economic analysis.