Consider a Ricardian model. There are two countries called Australia and New Zealand and two goods called beer and cheese. In Australia the unit labour requirement for a beer is 10 hours and for a cheese is 10 hours. In New Zealand the unit labour requirement for a beer is 4 hour and for a cheese is 1 hour. Australia has an endowment of 2000 hours of labour. New Zealand has an endowment of 400 hours of labour.
1 Draw a production possibility frontier (PPF) diagram for Australia and a PPF diagram for New Zealand. Cheese must be on the vertical axis and beer must be on the horizontal axis. (2 marks)
2 For both countries state the opportunity cost of producing a beer. (2 marks)
3 Suppose now that we have trade between the countries and the world price is 2 cheeses for 1 beer. For each country draw in the budget constraint. For each country label the production point on the diagram. (5 marks)
4 Denote the world prices in dollars as PB and PC respectively. Denote the respective quantities of beer and cheese consumed in New Zealand (following trade, of course) as DB and DC . Using this notation, write out an expression for the value of consumption in New Zealand. (2 marks) [Just a one-line answer]
5 Write out the budget constraint for New Zealand. That is, set the value of consumption equal to the value of production. (3 marks) [Again just a one-line answer]
6 Rearrange the budget constraint, showing all the steps, so that DC is on the left-hand side and everything else is on the right-hand side so the vertical intercept and slope are apparent. (2 marks) [Please see the next page]
7 While the ratio of prices is apparent from Question 3, we will assume from here on that PC=$1 and PB=$2. If 100 beers are consumed in New Zealand, how many cheeses will be consumed in New Zealand? Now if only 50 beers are consumed, how many more cheeses will be consumed? (2 marks)
8 For both countries calculate the hourly wage rate once international trade is allowed to take place (obviously for each country there can only be one wage rate in this model). (2 marks)
Consider a Ricardian model. There are two countries called Australia and New Zealand and two goods called beer and chees...
Consider a two countries, Portugal and England, that produce two goods, wine and cheese, with only one factor of production, Labor. In England, one unit of labor can produce 2 units of wine or 1 unit of cheese. In Portugal, one unit of labor can produce 3 units of wine or 1/2 of cheese. There are 100 units of labor in Portugal, and 100 in England. Countries share the same tastes, and there is perfect competition. 1) Fill in the...
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....
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10 ( 1JW al questions) 01. (20 marks) Assume a Ricardian model. Home needs 3 units of labour to pro food and 2 units of labour to produce a unit of cloth home needs 3 units of labour to produce a unit of units of labour to produce a unit of clothes. The foreign country needs 3 unit of labour to produce a unit of food and 1 unit of labou oduce a unit of food and 1 unit of...
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...
I need help with this exercise. Two countries, Canada and Indonesia, produce two goods, Computers (C) and rice (R) with labour (L) as the only input. The quantities of input required to produce a unit of each output are as follows: Computers Rice Indonesia 8 1 Canada 10 2 L in Canada is = 30, in Indonesia is =40. i) Sketch the PPF in each country (with QC on the horizontal axis). Indicate the intercepts and slope of the PFF...
1. Given the information in Table 1, in a two country and two-product Ricardian model, which of the following statements is (are) true? Table 1 Unit Labour Requirements T-shirt Brandy 4 hours 12 hours 6 hours 12 hours United States France A) The pretrade price ratio in France is 1 brandy - 2 T-shirts. B) The US pretrade price ratio is 1 brandy - 4 T-shirts. C) The US pretrade price ratio is 1 T-shirt = 1/3 brandy. D) The...