Home Work 1 - Fall 2023 - Answer Key

Consider the following Ricardian model with 2 countries and 2 goods. The table below provides information on the size of countries' labor force and their productivity in producing each good. India China 60 Labor Supply 350 workers workers Juice 3 workers 7 workers Tea 2 workers 5 workers Suppose Indian workers become three times more productive in producing juice. Does the pattern of trade change? Why and why not? Edit View Insert Format Tools Table 12pt v Paragraph v B I

Assume a Ricardian model. The following table shows the amount of output produced by each unit of labor in Germany and France and also the amount of labor available in those countries. Wheat (W) Computers (C) France 5 8 Germany 2 4 (a) Under free trade each country completely specializes in the good in which it has comparative advantage. Germany has 90,000 units of labor. Germany consumes 105,000 tons of wheat whether it is in autarky (no trade) or in free trade. Suppose under free trade the terms of trade are 1W = 1.75C. How many computers does Germany gain when its economy moves from autarky to free trade? Fermany produces Comparative wheat 525d = 0) once advantage. trade

In the Heckscher-Ohlin model, suppose the two factors of production are: high-skilled labor (H) and regular labor (L). The two sectors are manufacturing and business services. Manufacturing uses regular labor more intensively, and business services uses high-skilled labor more intensively. The two countries are the U.S. and China, and the U.S. has a comparative advantage in business services. a. Illustrate the effect of opening up to trade on the U.S. with the PPF and indifference curve diagram. Make sure you clearly label everything. What happens to the relative price of business services in the U.S.? Show clearly the gains from trade. b. What happens to the relative wage of high-skilled labor? Does inequality (the skill premium) increase? Show all work and explain. 2. Evidence for or against Heckscher-Ohlin model Leontieff Paradox i. Briefly describe the paradoxii.We discussed several explanations for the paradoxical result in class. Briefly describe two explanations. Inequality…

Two countries, Cordy and Ceps, can produce two goods (good 1 and good 2). There are two factors of production, labor (measured as hours worked per period of time) and capital (machine hours per time period). The production of good 2 uses labor relatively intensively; product 1 requires relatively more capital. Consider the following figure, which illustrates two different production possibilities (I and II). 1. Good2 II. II. Good1 A) Enter an own value for each country's existing quantity of labor and an own value for each country's quantity of capital so that of each country's amount of capital so that II is Cordy's production possibility frontier. Justify your choice of figures well.

Suppose that Cuba and Montserrat, two Carribian island economies start trading with each other. There are two goods in the economy: sugarcane and mangoes. The unit labour requirements for sugarcane are 5 and 4 respectively for Cuba and Montserrat. The unit labour requirements for mangoes are 20 and 10 respectively for Cuba and Montserrat. The total labour force in Cuba is 1000 and it is 500 in Montserrat.   In which good(s) does Cuba have an absolute advantage? In which does it have a comparative advantage? Who will be exporting what in a free trade equilibrium? Draw the supply and demand schedules for mangoes relative to sugarcane for the economy as a whole i.e. taking both countries together. Note that the relative supply curve can be determined with precision while the representation of the demand curve is slightly random. Suppose that the relative price of mangoes is 3. Show that both countries gain from Trade. Determine the wage level in Cuba relative to the wage level in…

štep 4. In order to conjecture the circumstances in these two countries under free trade, consider the following hypothetical scenario based on Ricardian model. Assume throughout that those two countries (Italy and Sweden) are the only two countries in the world, at least for purposes of trade. There are two goods: shoes and calculators. Consumers in both countries always spend half of their income on shoes and half of their income on calculators. The only factor of production is labour. Each Italian worker can produce 1 shoe or 2 calculators per unit of time. Each Swedish worker can produce 4 shoes or 2 calculators per unit of time. There are 80 workers in Italy and 60 workers in Sweden. You need to provide conditions in each country by stating: a) Derive the relative demand curve relating the relative demand for calculators to the relative price of calculators. Do this algebraically, and then show what the curve looks like in a diagram (put the relative price of calculators on the…

Refer to Table 1-1  Assume that Derryland and Whetonia each has 40 labor hours available and that there is no trade.  Each country consumes what it produces. Assume now that, without trade, Derryland spent 28 hours producing cheese (they really like cheese there!) and the remaining 12 hours producing bread.   Whetonia spent 20 hours producing cheese and 20 hours producing bread.  (Whetonians prefer a higher bread to cheese ratio.) What is the total output of CHEESE produced by both countries combined?

Answer the question on the basis of the following production possibilities data for Gamma and Sigma. All data are in tons.   Gamma production possibilities:   A B C D E Tea 120 90 60 30 0 Pots 0 30 60 90 120   Sigma production possibilities:   A B C D E Tea 40 30 20 10 0 Pots 0 30 60 90 120   What are the limits of the terms of trade between Gamma and Sigma?    1 tea=2 pots to 1 tea=6 pots            1 tea=3 pots to 1 tea=6 pots            1 tea=2 pots to 1 tea=3.5 pots            1 tea=1 pot to 1 tea=3 pots

Assume each country's potential output per unit worker per month is given below. (answer questions 15-18 based on the following information)                                               Corn (lb)                  Scarves(#)U.S.                                        20                             10Mexico                                    25                               5Which country has an absolute advantage in producing corn and scarves respectively a. U.S. in corn; Mexico in scarves b. U.S. in scarves; Mexico in corn c. Mexico in corn; Mexico in scarves d. U.S. in corn; U.S. in scarves

Question 1: Assume there are two nations: Panama and Guatemala that produce two commodities: coconuts and passion fruits. The table below contains the amount of each commodity produced per hour of labour in the two nations in terms of Kg. Panama Guatemala Passion fruits 9 4 Соconuts 6. c) Suppose passion fruits and coconuts are exchanged internationally at a rate of 1.2 passion fruit per coconut. Which country will export coconuts and why? Assuming both countries have 180 hours of labour each, draw the PPFS of both countries to your answer and explain why both countries are better off after trade. illustrate d) Draw the world supply curve of coconuts.

Assume that England and Spain can switch between producing cheese and producing bread at a constant rate. Labor Hours Number of Units Needed to Make Produced in 24 1 Unit of Hours Cheese Bread Cheese Bread England2 Spain 3 3 12 8 8 4 Which of the following statement is correct? England has the comparative advantage in Cheese Spain has the comparative advantage in Cheese England has the comparative advantage in both Cheese and Bread Spain has the comparative advantage in both Cheese and Bread

Analyze the following (2x2) matrix. Identify the countries having certain advantages. Moreover, specify the benefits of trade for both countries.   Matrix A     Wheat (bushels/labor hour ) Cloth (yards/labor hour) United States 6 4 U.K. 1 3 (Numerical values reflect output per unit of input) Will trade occur? Identify the country having the absolute advantage in wheat and the one having the absolute advantage in cloth. Identify the production possibility frontiers for both countries. Show the gains of trade if we assume that the U.S. exchanges 6 units of wheat for 6 units of cloth.

Two countries, Nicaragua and Argentina can both produce bananas and wheat. Their production possibility frontiers are shown below. Based on this we can say that Nicaragua has a comparative advantage in producing__________. Both countries can gain from trade if Nicaragua produces___________ and Argentina produces __________ and trade. Bananas; bananas; wheat. Bananas; wheat; bananas. Wheat; wheat; bananas Wheat, bananas; bananas

Consider the following Ricardian model with 2 countries and 2 goods. The table below provides information on the size of countries' labor force and their productivity in producing each good. India China 350 60 Labor Supply workers workers Juice 3 workers 7 workers Тea 2 workers 5 workers What country has absolute advantage in producing juice? Why? What country has comparative advantage in producing juice? Why? Edit View Insert Format Tools Table 12pt v Paragraph v B I U Av 2 ...

Suppose there exist two imaginary countries, Denali and Congaree. Their labor forces are each capable of supplying four million hours per week that can be used to produce almonds, shorts, or some combination of the two. The following table shows the amount of almonds or shorts that can be produced by one hour of labor. Country Almonds Shorts (Pounds per hour of labor) (Pairs per hour of labor) Denali 6 12 Congaree 4 16   Suppose that initially Denali uses 1 million hours of labor per week to produce almonds and 3 million hours per week to produce shorts, while Congaree uses 3 million hours of labor per week to produce almonds and 1 million hours per week to produce shorts. As a result, Denali produces 6 million pounds of almonds and 36 million pairs of shorts, and Congaree produces 12 million pounds of almonds and 16 million pairs of shorts. Assume there are no other countries willing to engage in trade, so, in the absence of trade between these two countries,…

Time left 1:16:41 11 Let us assume that the world is composed of only two countries - let us call therrreg. Quaura and Alemania, in which two products (bicycles and computers) are produced. We are given some basic information on their production functions (see the table) and we assume that this world behaves exactly as predicted by the traditional Ricardian trade model. 10 t of Finish astion Units of labour Units of labour per 1 bicycle per 1 computer Alemania 15 Quadia 2. 16 Assume that consumers in Alemania and Quadia have the same simple Leontief utility function that we have used previously, i.e. that they want to buy 1 bicycle per one computer. We also know that Quadia has 3600 units of labour in total. If the two countries start trading, the world prices would settle at 6 bicycles per 1 PC. Which of the following options correctly describes the autarky and free trade production and consumption equilibrium of this economy? O a. Free trade production in Quadia: 1800 bicycles, 0…

Trade theories suggest that both countries gain from trade. In a 2-country, 2-good model, we assume the 2 states—Futland and Tandam share a common currency (allowing us to ignore exchange rate), they both have the same wages, and they both produce two goods: bicycles and boots. The units of labour requirement are shown below, assuming constant returns to scale.     Production Techniques: Units of labour hour required per unit output   Tandom Futland Bicycles 90 hours 120 hours Boots 30 hours 50 hours   Define opportunity cost. Using the table above, calculate the opportunity cost of bicycles in terms of boots and the opportunity cost of boots in terms of bicycles for each of the countries.

Trade theories suggest that both countries gain from trade. In a 2-country, 2-good model, we assume the 2 states—Futland and Tandam share a common currency (allowing us to ignore exchange rate), they both have the same wages, and they both produce two goods: bicycles and boots. The units of labour requirement are shown below, assuming constant returns to scale.     Production Techniques: Units of labour hour required per unit output   Tandom Futland Bicycles 90 hours 120 hours Boots 30 hours 50 hours iii. Which country has a comparative advantage in the production of each of the two goods?

Consider two countries X and Y that can each produce 4 cars a year. A worker from country X can produce 10 tons of grain a year, whereas a worker from country Y can produce 5 tons of grain a year. To keep things simple, assume that each country has 100 million workers. For this situation, 1- Which country has an absolute advantage in producing cars? 2- Provide a construction of the production possibilities frontier for each country. 3- Construct the opportunity cost table for both countries. 4- Conclude which country has a comparative advantage in which product and how international trade makes each country better off.

Two countries, Aquarium and Lillbanum, trade with each other. We call the products wild boar (designated V) and marble (M). Wild boar production is relatively land-intensive; the production of marble is relatively labor intensive. Aquarium has a relatively good workforce. Illustrate the production possibilities of the aquarium; place the boar on the vertical axis and the marble on the horizontal axis. Use your figure to illustrate: i) production and consumption in the aquarium under autarky; ii) production and consumption in the aquarium during trade and iii) which commodity the Aquarium exports and which commodity the Aquarium imports (mark the size of exports and imports in the figure).

can someone help with part G Case Study1. Assume that the continent of Mainland has only two countries, Alpha and Beta, which produce only two goods, corn, and peanut. Each country has 42 labor hours per week allocated to the production of corn or peanut. Producing a ton of corn costs 2.8 hours to Alpha and 1.4 hours to Beta. On the other side, each ton of peanut costs 1.68 hours to Alpha and 4.2 hours to Beta. Using the above case study, respond to the following Questions by showing all your work: a. Draw the production possibilities frontier of each country and provide its equation with peanuts on the x-axis. b. Assume that each country decides to use half of its resources in the production of each good. Show these points on the graphs for each country as point A. c. Can Alpha produce Beta produce 20 tons of corn and 15 tons of peanut each? Justify your answer. (Hint: Use the PPF equations.) d. If these countries choose not to trade, what would be the total world production of…

Suppose countries A and B produce and consume (assuming convex preferences) apples and bananas using only labour. Unit labour cost for apples in country A are 2 and 1 in country B. Unit labour cost for bananas are 5 in country A and 4 in country B. The labour force is the same in both countries, and given by 100 in each country. Which three of the following statements are true?       Each country has an absolute advantage.     Allowing for international trade, the production of 100 apples and 20 bananas can occur in a global market equilibrium, but not in a market equilibria under autarky.     Country A will produce apples, with or without international trade.     Under autarky, the relative price for apples (price for apples/price for bananas) equals 0.4 in country A and 0.25 in country B.     Country B has an absolute advantage in producing bananas.     Allowing for international trade, the production of 60 apples and 40 bananas is feasible, but…