Important Announcement Regarding Test Material

Please be advised, the relevant chapters in the Carbaugh text are 1, 2 and 3. I believe I may have inadvertently said only 1 and 2. We have covered material in 3 (up to p. 65).

Comment on homework solutions. The answer to Problem 2, part (b). Although I reported the autarky MRTs for the countries, you were not expected to calculate those. You were only supposed to draw in lines tangent at those autarky production points.

On Alchemy

I've had a few questions regarding what is meant by alchemy. The reading, Fruits of Free Trade, references the term in the context of some magical creation of gains from trade. Alchemy, often thought of as a branch of chemistry, is the mythical practice of turning lead into gold (Pb -> Au). Alchemy was often believed to be practiced by wizards.

The keyword is "mythical". If lead could indeed be turned to gold it would, at first thought, seem to be wealth-creating. However, if one thinks that alchemy could, indeed, turn lead into gold, gold would no longer be as scarce and, hence, no longer of value.

Anyway, for the paper, you are to think about how "gains" from trade are generated. Is it magical? If not, what gives rise to the ability to increase overall consumption?

Assignment #1

The Fruits of Free Trade

Federal Reserve Bank of Dallas, 2002 Annual Report

W. Michael Cox and Richard Alm

The article may be found at the following link: http://www.dallasfed.org/fed/annual/2002/index.html

This article is viewable in *.html or *.pdf formats. You are advised to download the *.pdf format as it contains many photos, diagrams, and tables that are missing from the *.html document. The relevant pages of the report are pages 3-24.

A copy of the assignment and the reading are available on the instructor's I-drive I:/jjulian/ on the IUP network.