Comparing Real Economic Output with a Common Price Set
An economist wants to compare the real economic output of two countries, Richland and Sterling, which both produce only wheat and cloth. The table below shows the quantity produced and the local price for each good in a specific year.
| Country | Good | Quantity | Local Price |
|---|---|---|---|
| Richland | Wheat | 200 tons | $300/ton |
| Richland | Cloth | 500 bolts | $50/bolt |
| Sterling | Wheat | 250 tons | $250/ton |
| Sterling | Cloth | 400 bolts | $60/bolt |
To create a meaningful comparison free from price-level distortions, calculate the total value of production for both countries using Richland's prices as the common standard. Based on this calculation, which country has the higher real economic output?
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Comparing Real Economic Output
Comparing Real Economic Output with a Common Price Set
An economist wants to compare the real economic output of two countries, Country A and Country B, which each produce only apples and bananas. To eliminate the effect of different price levels, the economist decides to value the production of both countries using the prices from Country A.
Country Good Quantity Local Price A Apples 100 $1 A Bananas 50 $2 B Apples 120 $2 B Bananas 40 $1 Based on this methodology, what is the calculated real output of Country B?