Assume that the world economy consists of two countries
Question Background: Assume that the world economy consists of two countries: Russia and Byelorussia. Each country can produce tomatoes and potatoes. Russia can produce 1000 tons of tomatoes or 3000 tons of potatoes or any linear combination of tomatoes and potatoes that satisfies potatoes+3×tomatoes=3000. Byelorussia can produce 1000 tons of tomatoes or 1000 tons of or any linear combination of tomatoes and potatoes that satisfies potatoes+tomatoes=1000. Countries can freely trade with each other.
There are three specific questions that I'm unclear on and would like a more detailed solution to. These detailed solutions would preferably be a written explanation (possibly accompanied by a graph):
c) (2 points) If the equilibrium price of tomatoes is $600/ton, what is the minimum and maximum
possible prices of potatoes?
Answer: min = $200 max = $600
d) (3 points) Assume people in both countries eat the same dish that requires the equal amount of
tomatoes and potatoes to prepare. What will be the Russia’s GDP if the equilibrium price of tomatoes is
Answer: World production: T=P=1500, price of potatos=$200; Russia produces 1500tons of potatoes and 500
tons of tomatoes. Thus, GDP=1500*200+$500*600=$600,000
e) (3 points) Given the same information as in question (d) above, how many tons of potatoes will be
consumed in Russia?