1) Two countries, A and B, each produce 2 goods, X and Y, using labor. Country A need 2 units of labor to produce a unit of good X and 3 units of labor to produce a unit of good Y. Country B uses 3 units of labor to produce a unit of good X and 4 units of labor to produce a unit of good B. Country A has 1800 units of labor and Bounty B has 1200 units of labor. A: If each country used half of their labor to produce good X and half to produce good Y how many units of each good would each country produce? B: Which country has the absolute advantage in the production of each good? Explain. C: Which country has the relative advantage in the production of each good? Explain. D: If each country specialized in producing the good in which they have the relative advantage how many units of each good would be produced? 2) Use Supply and Demand graphs to support your answer in each of the following cases: A: What happens to consumer, producer and total economic surplus when we import a good? B: What happens to consumer, producer and total economic surplus when we export a good? C: What happens to consumer, producer and total economic surplus if we impose a tariff on imports? D: What happens to consumer, producer and total economic surplus if we impose an export duty (tax paid by the producer) on exports. 3) Suppose country A has 5000 units of capital and 2000 units of labor while country B has 6000 units of capital and 3000 units of labor: A: Which country is capital abundant and which one is labor abundant? Explain! Now suppose the production one unit of good X requires 3 units of capital and 2 units of labor and the production of one unit of good Y requires 6 units of capital and 3 units of labor. B: Which good is the capital intensive good and which one is the labor intensive good? Explain!! C: Which country should specialize in and export good X and which country should specialize in and export good Y. Explain!!! D: Using appropriate graphs, demonstrate that trade is beneficial if two countries have identical technology but different preferences. Does a country specialize in producing the good where they have the strongest preference? Explain 4. A: What are the three fiscal policy tools? B: How would change each tool if your goal was to reduce unemployment? C: How would you reduce each tool if your goal was to reduce inflation? D: Supply shocks cause both unemployment and inflation to increase. Given the results in B and C can fiscal policy be used successfully to reduce both inflation and unemployment at the same time? Explain! 5. A: What is the difference between a deficit and the national debt. B: What do we mean by The Crowding Out Effect? C: Using graphs for support, explain how increases in the budget deficit result in larger trade deficits. D: In 1988 interest on the national debt was $214 billion and in 2018 it was $532 billion. In 1988 10% of the interest was paid to the foreign sector and in 2018 28% was paid to the foreign sector. In percentage terms, how much did interest paid to the foreign sector increase between 1988 and 2018?
1) Two countries, A and B, each produce 2 goods, X and Y, using labor. Country A need 2 units of labor to produce a unit of good X and 3 units of labor to produce a unit of good Y. Country B uses 3 units of labor to produce a unit of good X and 4 units of labor to produce a unit of good B. Country A has 1800 units of labor and Bounty B has 1200 units of labor.
A: If each country used half of their labor to produce good X and half to produce good Y how many units of each good would each country produce?
B: Which country has the
C: Which country has the relative advantage in the production of each good? Explain.
D: If each country specialized in producing the good in which they have the relative advantage how many units of each good would be produced?
2) Use
A: What happens to consumer, producer and total economic surplus when we import a good?
B: What happens to consumer, producer and total economic surplus when we export a good?
C: What happens to consumer, producer and total economic surplus if we impose a tariff on imports?
D: What happens to consumer, producer and total economic surplus if we impose an export duty (tax paid by the producer) on exports.
3) Suppose country A has 5000 units of capital and 2000 units of labor while country B has 6000 units of capital and 3000 units of labor:
A: Which country is capital abundant and which one is labor abundant? Explain!
Now suppose the production one unit of good X requires 3 units of capital and 2 units of labor and the production of one unit of good Y requires 6 units of capital and 3 units of labor.
B: Which good is the capital intensive good and which one is the labor intensive good? Explain!!
C: Which country should specialize in and export good X and which country should specialize in and export good Y. Explain!!!
D: Using appropriate graphs, demonstrate that trade is beneficial if two countries have identical technology but different preferences. Does a country specialize in producing the good where they have the strongest preference? Explain
4. A: What are the three fiscal policy tools?
B: How would change each tool if your goal was to reduce
C: How would you reduce each tool if your goal was to reduce inflation?
D: Supply shocks cause both unemployment and inflation to increase. Given the results in B and C can fiscal policy be used successfully to reduce both inflation and unemployment at the same time? Explain!
5. A: What is the difference between a deficit and the national debt.
B: What do we mean by The Crowding Out Effect?
C: Using graphs for support, explain how increases in the budget deficit result in larger
D: In 1988 interest on the national debt was $214 billion and in 2018 it was $532 billion. In 1988 10% of the interest was paid to the foreign sector and in 2018 28% was paid to the foreign sector. In percentage terms, how much did interest paid to the foreign sector increase between 1988 and 2018?
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