Homework Answers
(a) The nations with identical preferences and identical endowments will not gain from trade thus will not trade
(b) Countries have identical preferences, but different endowments differ which are not in the same ratio of food to clothing will benefit from trade thus will trade
(c) Countries have identical preferences, different endowments differ which are in the same ratio of food to clothing will be neutral from trade thus will not trade
(d) Countries have identical endowments but different preferences will not trade as their will not be any gain from trade
(e) The countries having different preferences and different endowments will gain from trade, thus they will trade
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1. (Endowment Economies) When will countries trade? Assuming 2 goods, food and clothing, and two countries...
Question 1 Use the 2-country Ricardian model with free trade (graphically, using standard graphs) to work...
Question 1 Use the 2-country Ricardian model with free trade (graphically, using standard graphs) to work out the effects of the following changes (one at a time) on the Home and Foreign terms of trade and welfare. Assume that two goods, Food and Cloth, are produced and consumed, Home country has a comparative advantage in Food, and that in the initial equilibrium, both countries specialize completely. Assume that preferences are identical and homothetic in the two countries. (a) A decrease...
Consider a general model of Ricardian trade with 2 countries (Home and Foreign) and 2 goods...
Consider a general model of Ricardian trade with 2 countries
(Home and Foreign) and 2 goods (Clothing and Food): unit labor
costs are aLC and aLF in Home and a∗LC and a∗LF in Foreign. Home
and Foreign are endowed, respectively, with L and L∗ units of
labor. Workers in both countries have the same preferences
represented by a Cobb-Douglas utility function:
Consider a general model of Ricardian trade with 2 countries (Home and Foreign) and 2 goods (Clothing and Food):...
15. Which of the following does not contribute to a basis for trade between two countries?...
15. Which of the following does not contribute to a basis for trade between two countries? a. different tastes and preferences b. different technologies c. different relative factor endowments d. different absolute factor endowments, but the same relative endowments 16. Given the following graph showing production-possibilities frontiers for country A and country B in a situation where both countries are on the same community indifference curve S, in autarky: good Y Px/Py in country B, and, when trade begins, country...
Problem 1 A country (”Home”) is populated with 300 workers who produce either food (F) and/or...
Problem 1
A country (”Home”) is populated with 300 workers who produce
either food (F) and/or clothing (C). Each food worker produces 6
units of food and each clothing worker produces 3 units of
clothing. The preferences of the consumers over food and clothing
are represented by the utility function: u(DF ,
DC) = (DF ) 2/3 (DC)
1/3
1) Assuming that at the optimum, consumers set their marginal
rate of substitution, MRSDF ,DC , to the relative price,
i.e.,...
1. Economies of Scale Assume that there are only two countries: Home and Foreign both producing...
1. Economies of Scale Assume that there are only two countries: Home and Foreign both producing smart phones and computers. endowment. Each country has 100,000 labor hours available of which it allocates equally to each These two countries have identical demand, production technology, and resource industry. The unit labor requirement is 20 hours for phones and 25 hours for computers. The labor requirement for phones does not change with the quantity of output. On the other hand, the unit labor...
. Why similar countries trade Aa Aa Consider two hypothetical countries called Cassvania and Koopmansville. The...
. Why similar countries trade Aa Aa Consider two hypothetical countries called Cassvania and Koopmansville. The countries have similar resource endowments and production technology, and yet they specialize and trade with each other. Read the following details and determine why international trade is possible between these two countries. Koopmansville has many natural lakes and streams. As a result, its residents grow up on the water and have a natural sense of how boats should work and be made. Because of...
3. Consider two Ricardian economies whose endowments and technologies are given in the table below. Each...
3. Consider two Ricardian economies whose endowments and
technologies are given in the table below. Each has fixed endowment
of labour, only factor of production, and can produce two goods,
cloth C and food F, using the constant amounts of labour per unit
of output.
Suppose now that free trade between the two countries leads to a
world equilibrium price of PC/PF = 0.60. Calculate the new wages of
labour in each country in units of both C and F....
Suppose that Bridget and Erin spend their incomes on only two goods, food (F) and clothing...
Suppose that Bridget and Erin spend their incomes on only two goods, food (F) and clothing (C). Bridget’s preferences are represented by the utility function U(F,C)=10FC, while Erin’s preferences are represented by the utility function UF,C=5F2C. With the market basket F=2 and C=5, both Bridget and Erin get 100 unit of utility. Is it correct to say that Bridget and Erin have the same preference (i.e. their indifference curves are the same)? Explain your answer. Would you agree that Erin...
PROBLEM 1 Consider the typical HO setting: 2 countries, the United States and Canada, produce two goods,...
PROBLEM 1 Consider the typical HO setting: 2 countries, the United States and Canada, produce two goods, maiz (corn) and cloth, with two factors, land and labor. Both countries share the same tastes and the same technology. Maiz production is land intensive, and therefore cloth production is labor intensive. Furthermore, resource endowments are as follows: in the US there are 100 units of labor and 100 of land, in Canada there are 60 units of labor and 90 of land. Which...
2. (Ricardian Model) Two agricultural economies, "Home and "Foreign" produce corın (C) and wheat (W). Home...
2. (Ricardian Model) Two agricultural economies, "Home and "Foreign" produce corın (C) and wheat (W). Home has an endowment of 200 fields, each of which can produce either 2 units of corn or 2 units of wheat. Foreign has an endowment of 300 fields, each of which can produce either 1 unit of con or 2 units of wheat. Consus in both economies have identical homothetic preferences represented by the utility function: (a) Draw the production possibility frontiers for both...
Question 1 Use the 2-country Ricardian model with free trade (graphically, using standard graphs) to work out the effects of the following changes (one at a time) on the Home and Foreign terms of trade and welfare. Assume that two goods, Food and Cloth, are produced and consumed, Home country has a comparative advantage in Food, and that in the initial equilibrium, both countries specialize completely. Assume that preferences are identical and homothetic in the two countries. (a) A decrease...
Consider a general model of Ricardian trade with 2 countries
(Home and Foreign) and 2 goods (Clothing and Food): unit labor
costs are aLC and aLF in Home and a∗LC and a∗LF in Foreign. Home
and Foreign are endowed, respectively, with L and L∗ units of
labor. Workers in both countries have the same preferences
represented by a Cobb-Douglas utility function:
Consider a general model of Ricardian trade with 2 countries (Home and Foreign) and 2 goods (Clothing and Food):...
15. Which of the following does not contribute to a basis for trade between two countries? a. different tastes and preferences b. different technologies c. different relative factor endowments d. different absolute factor endowments, but the same relative endowments 16. Given the following graph showing production-possibilities frontiers for country A and country B in a situation where both countries are on the same community indifference curve S, in autarky: good Y Px/Py in country B, and, when trade begins, country...
Problem 1
A country (”Home”) is populated with 300 workers who produce
either food (F) and/or clothing (C). Each food worker produces 6
units of food and each clothing worker produces 3 units of
clothing. The preferences of the consumers over food and clothing
are represented by the utility function: u(DF ,
DC) = (DF ) 2/3 (DC)
1/3
1) Assuming that at the optimum, consumers set their marginal
rate of substitution, MRSDF ,DC , to the relative price,
i.e.,...
1. Economies of Scale Assume that there are only two countries: Home and Foreign both producing smart phones and computers. endowment. Each country has 100,000 labor hours available of which it allocates equally to each These two countries have identical demand, production technology, and resource industry. The unit labor requirement is 20 hours for phones and 25 hours for computers. The labor requirement for phones does not change with the quantity of output. On the other hand, the unit labor...
. Why similar countries trade Aa Aa Consider two hypothetical countries called Cassvania and Koopmansville. The countries have similar resource endowments and production technology, and yet they specialize and trade with each other. Read the following details and determine why international trade is possible between these two countries. Koopmansville has many natural lakes and streams. As a result, its residents grow up on the water and have a natural sense of how boats should work and be made. Because of...
3. Consider two Ricardian economies whose endowments and
technologies are given in the table below. Each has fixed endowment
of labour, only factor of production, and can produce two goods,
cloth C and food F, using the constant amounts of labour per unit
of output.
Suppose now that free trade between the two countries leads to a
world equilibrium price of PC/PF = 0.60. Calculate the new wages of
labour in each country in units of both C and F....
2. (Ricardian Model) Two agricultural economies, "Home and "Foreign" produce corın (C) and wheat (W). Home has an endowment of 200 fields, each of which can produce either 2 units of corn or 2 units of wheat. Foreign has an endowment of 300 fields, each of which can produce either 1 unit of con or 2 units of wheat. Consus in both economies have identical homothetic preferences represented by the utility function: (a) Draw the production possibility frontiers for both...
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