You should try to solve the question by yourselves. If you struggle, don’t stay stuck for too long (too long is not 5 mins!), but work and discuss the problem with other students in small groups. Once you have found a potential solution, write up your solution individually.
Exercise 1 State whether the following statements are true, false, or uncertain, and brie y give the reason for your answers. The explanation is more important than the correct classification.
Exercise 2 A country (“Home”) is populated with workers who produce either food (F ) or clothing (C). There are 300 workers producing food and 100 producing clothing – these numbers are mixed in the short run. Each food worker produces 5 units of food and each clothing worker produces 3 units of clothing. Workers own the output they produce and can trade with another. All workers share the same preferences over food and clothing represented by the utility function: U(DC;DF ) = DC2DF