ANSWER A, B, C, D & E.
(a) In which product does country H have the absolute advantage over country F? According
to Smith’s theory, which product should country H export? In which product does
country H have the comparative advantage over country F? According to Ricardo’s theory,
which product should country H export?
(b) Specify the production possibility curve (PPC) in country H. Calculate the production
and consumption allocation of country H in the no-trade case. Take fruits as the unit of account.
How much is the relative price of bread in terms of fruits in country H? Use the PPC and the
optimal consumption path to show your results graphically.
(c) Suppose that the population size of country H is substantially smaller than that of country
F. If both products can be freely trade between the two countries, country H is a small
open economy and takes the world price as given. How does free trade with country F affect
the relative price and the production in country H? Calculate the production allocation and the
consumption allocation of country H in the case of free trade. Use the PPC, the balanced trade
line, and the optimal consumption path to show your results graphically.
(d) Instead of relying on free trade, country H can raise its autarkic level of consumption
by improving its productivity in both sectors in equal proportions. By what percentage should
country H improve its sectoral productivity so as to reach the same consumption level as in
question (c)?
(e) Suppose that the population size of country H is similar as that of country F. In the
case of free trade, the world relative price is the average of the autarkic prices in the two
countries. Calculate the production and the consumption allocations in the case of free trade.
Use the PPC, the balanced trade line, and the optimal consumption path to show your results
graphically. Compare with your answer in question (c), how does the country size affect the
size of gains from trade and why?
Please note this is all the information the lecturer has given us so please go from there and answer at least what you can, this should have all the information needed however...
a) Country H has absolute advantage in the product of fruits(3) over country F.
According to Adam smith, country H should export product of fruits.
Country H have comparative advantage in the production of fruits over country F.
According to Riccardo, Country H should export product of bread over country F.
Relative price of bread interms of fruit is 2/3 = 0.7
c) Free trade is meant to eliminate unfair barriers to global commerce and raise the economy in developed and developing nations alike. But free trade can – and has – produced many negative effects, in particular deplorable working conditions, job loss, economic damage to some countries, and environmental damage globally.
As underdeveloped countries attempt to cut costs to gain a price advantage, many workers in these countries face low pay, substandard working conditions and even forced and abusive child labor.
ANSWER A, B, C, D & E. (a) In which product does country H have the...
(a) In which product does country H have the absolute advantage over country F? According to Smith’s theory, which product should country H export? In which product does country H have the comparative advantage over country F? According to Ricardo’s theory, which product should country H export? (b) Specify the production possibility curve (PPC) in country H. Calculate the production and consumption allocation of country H in the no-trade case. Take fruits as the unit of account. How much is...
19. We know that in an country knew how to wat in antiquity, China exported new how to produce this product red silk because no one in any other c. From this information we know that ative advantage in silk. China had a comparative advantas China had an absolute advantage, but C) no comparative advantage could D) China exported silk for advantage. E) China was unable to pro the world. _. The two-country, multi-produ model in that, in the former...
You have to answer the questions that I have typed out, the screenshots are just the data (disregard the questions on the screenshot/worksheet) Question 1 (10 points) Refer to HW #7. Does either country have an absolute advantage in the production of the two goods? Question 1 options: Spain has an absolute advantage in the production of both goods. England has an absolute advantage in the production of cheese and Spain has an absolute advantage in the production of bread....
Let us assume a 2x2x2 model (country H & F, good A & B, factors L & K). The two countries are identical except L < L* and K > K* More over good A is labor intensive and good B is capital intensive. (a) Draw the production possibility frontier of the two countries. (You need to measure A on the horizontal axis). (b) Using factor prices w & r, commodity prices Pa & Pb, derive the relation between the...
Suppose a small country producing cars (C) and food (F) is closed to free trade. Its production possibilities frontier (PPF) reflects increasing costs (it’s bowed out). Finally, preferences in this country are such that consumers like both goods equally: U(DC , DF ) = D 1 2 CD 1 2 F . (a) Using graphs, show the autarky equilibrium in this country. Show both (i) a graph of the PPF and indifference curve, and (ii) a graph of relative demand...
Problem IV. Demand and supply curves for two large countries are given by figure 1. Answer the following 1. Consider the autarky situation. (a) Calculate CS, PS, GS, and TS for both countries (3 points) 2. Now, suppo countries open to trade (a) Which country imports and which exports? (0.5 point) (b) Derive import demand for importer and export supply for exporter. You can either drawe both curves with appropriate labeling and placing numbers or write equations. ( points) (e)...
Can a country have comparative advantage even though it has an absolute disadvantage? Make up a numerical example to show this. Someone tells you, “I do not understand how Bangladesh with its low productivity can compete in the world markets at all and even trade with the U.S. Surely the U.S. is better at producing everything relative to Bangladesh!” Ross Perot, a former presidential candidate, said in 1993 that the introduction of free trade between the U.S. and Mexico, would lead to...
You are given the following information on unit labor requirements in Pugelovia and the rest of the world (ROW): aLin rice aL in cloth Pugelovia 0.75 1 ROW 0.5 0.5 You make the usual Ricardian assumptions. There are only two commodities, constant unit labor requirements and perfect competition in all markets. a. Which country has the absolute advantage in rice? b. Which country has the absolute advantage in cloth? c. Which country has the comparative advantage in rice? d....
3. Gains from trade Consider two neighboring island countries called Felicidad and Bellissima. They each have 4 labor hours available per week that they can use to produce corn, jeans, or a combination of both. The following table shows the amount of corn or jeans that can be produced using 1 hour of labor. Corn Country Felicidad Bellissima Jeans (Pairs per hour of labor) 20 (Bushels per hour of labor) Initially, suppose Bellissima uses 1 million hours of labor per...
Problem IV. Demand and supply curves for two large countries are given by figure 1. Answer the following questions. (38 points) 1. Consider the autarky situation. (a) Calculate CS, PS, GS, and TS for both countries. (3 povints) 2. Now, suppose countries open to trade. (a) Which country imports and which exports? (0.5 point) (1) Derive import demand for importer and export supply for exporter. You can either draw both curves with appropriate labeling and placing numbers or write equations....