12:42 AM0.0KB/s L O A M 4expert.chegg.com/expei(7EconomicsA small open economy produces two goods, 1 and 2, at output levels yi, i = 1,2. Output prices are set on world markets and denoted p1, p2.The economy is endowed with quantities L of labour and K of capital. Capital is used in sector 2 only, and labour is used in both sectors, L,denoting the use of labour in sector i = 1,2. The wage rate and the capital rental rate are w and r, respectively. The production function for good1 is y = L1, and good 2 has production function y2 = VKL.What is the equilibrium allocation of labour between sectors (expressed as a function of goods' prices and endowments)?O a. L = L-)°K,L2 = (*K.O b. L= (K,L =L-(K.O c. L = 0, L = L.O d. L = L, L2 = 0.Consider the economy form Question 4. Suppose that there is another economy, which is identical to the first one but has a greater endowmentof capital K' > K.What is the output of good 2 in either economy? Assuming that consumers in both countries are identical, what is thepattern of trade between those two countries?The first country produces y2 = K and the second country produces y = K'. Therefore, the first country exports good 1 andimports good 2.O bThe first country produces y2LEK and the second country produces y, = L - K'. Therefore, the first country exportsgood 2 and imports good 1.O c. The first country produces yn = K and the second country produces y, = K'. Therefore, the first country imports good 1 andexports good 2.O d. The first country produces y2 = L - K and the second country produces y = L - K'. Therefore, the first country importsgood 2 and exports good 1.

Given information A small economy producing 2 goods: good 1 and good 2 Labor and capital are the…

Answered: A small open economy produces two…

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter28: International Trade

Section: Chapter Questions

Problem 8P

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4. Assume a two-country two-good two-input model. Let the countries in the model be Vietnam andMyanmar and the goods be shirts and natural gas. The two factors of production are labor and land.Further, Vietnam is labor-abundant and shirts production is labor-intensive. Suppose, in the absenceof trade, Vietnam operates at a point on its production-possibility curve where it produces andconsumes 20 units of shirts and 25 units of natural gas. Once it engages in free trade, the internationalprice of one unit of natural gas is .8 units of a shirt. In response to the opening of trade, Vietnammoves along its production-possibility curve to a new point where it produces 100 units of shirts and10 units of natural gas. Assume that with free trade, Vietnam chooses to consume 52 units of shirtsand chooses to trade all of its remaining surplus of shirts.a. Demonstrate the gains to trade for Vietnam.
Two countries, Korea and Vietnam, are engaging in international trade.They produce two goods: automobiles and cloth. We observe a relativeabundance of cheap labor in Vietnam and a relative abundance of capitalin South Korea. a. Assume that automobiles are capital-intensive and cloth are cheaplabor-intensive. Using the Hecksher-Ohlin theory, explain what willhappen in trade between these two countries, in terms of export andimport. c. Draw a graph that shows the above situation in South Korean economy with a P P F and two relative prices (one before trade and theother after trade). The quantity of automobiles (QAuto) is on thehorizontal axis and the quantity of cloth (QCloth) is on the verticalaxis.
Use the specific factor model to analyze a simplified version of a liberalization of trade betweenBrazil and Japan. Assume that there are two goods that people want to buy: coffee and cars. Assumethat there are three production factors: land, capital and labor. Land is specific to coffee, capital isspecific to cars and workers can work in both industries. Assume that, under autarky, coffee is cheaper in Brazil than in Japan. How does the price of coffeein Brazil change when Brazil opens up to international trade? Explain your answer
Assume that during the years 2022 to 2025 Woodland Republic could produce only two commodities: tractors and rice. Also, assume that Woodland Republic canprocuce at any of the positions represented by the production possibility schedule below. A B C D E F G H Tractors 0 2 4 7 9 11 13 14 Rice (in tons) 100 95 85 70 60 50 30 0 Suppose in 2022 the economy is producing at point D. What is the opportunity cost of producing 6 more tractors in 2023
The table below presents production schedule of apples and bananas in the country of mistania - assume that these are the only two goods that Mistania produces. Each row represents a specific set of apples and bananas that Mistania could produce. Suppose Mistania was currently at Senario C, producing 10 bananas and 80 apples. According to the data in this table, if Mistania wanted to produc 1 more banana, how many fewer apples will it need to produce? Scenario Bananas Apples A 0 100 B 5 90 C 10 80 D 15 70 E 20 60
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…
Suppose that in a year an American worker canproduce 100 shirts or 20 computers and a Chineseworker can produce 100 shirts or 10 computers.a. For each country, graph the productionpossibilities frontier. Suppose that without tradethe workers in each country spend half their timeproducing each good. Identify this point in yourgraphs.b. If these countries were open to trade, whichcountry would export shirts? Give a specificnumerical example and show it on your graphs.Which country would benefit from trade?Explain.c. Explain at what price of computers (in terms ofshirts) the two countries might trade.d. Suppose that China catches up with Americanproductivity so that a Chinese worker canproduce 100 shirts or 20 computers in a year. Whatpattern of trade would you predict now? Howdoes this advance in Chinese productivity affectthe economic well-being of the two countries’citizens?
Consider a world with two goods (steel and wine). There are two countries (Germany and France) which have identical technologies and preferences. Assume that the production of wine is relatively labor intensive, while the production of steel is relatively capital intensive. Also assume that after free trade in goods, Germany exports steel and France exports wine. (a) What can you say about the relative endowments of the two countries? (Explain which trade theorem you are using to answer this question). (b) Before opening to trade in goods, both economies allow capital mobility. i) In which direction is capital flowing (explain why)? ii) What will happen to the production of wine and steel in both countries? (hint: using an Edgeworth box might help); and iii) What will be the effect of capital mobility on factor prices in the two countries? (c) Instead, assume that there is labor mobility instead of capital mobility. i) In which direction will labor flow? ii) What will happen…
Home has 12,000 units of labor available. It can produce two goods, apples and bananas. The unit labor requirement in apple production is 100, while in banana production is 75. There is now also another country, Foreign, with a labor force of 18,000. Foreign’s unit labor requirement in apple production is 120, while in banana production is 150. Graph Foreign’s PPF. Construct the world relative supply curve of banana. What will happen if Pa/Pb < 4/5? Graph the relative demand curve along with the relative supply curve of banana. Assume: Demand for apples/ demand for bananas =half of price of bananas/ price of apples What is the equilibrium relative price of banana?
Which statements are true or false? 1. S1: The equilibrium nations want to achieve ideally is the stableequilibrium. S2: The general idea of an equilibrium is one in which allparticipants are doing what is best for them, given what they expect othersto do, which in turn matches what others are actually doing.
. Which country has an absolute advantage in the production of fruit? Which countryhas an absolute advantage in the production of timber?b. Which country has a comparative advantage in the production of fruit? of timber?c. Sketch the PPF’s for both countries.d. Assuming no trading between the two, if both countries wanted to have equalnumbers of feet of timber and baskets of fruit, how would they allocate workers tothe two sectors?e. Show that specialization and trade can move both countries beyond their PPF’s.
Suppose that the opportunity cost ratio for apples and oranges is 1AE =30 in Germany but 10= 2A in Japan At which of the following international eschange ratios (terms of trade) with Gemany andJapan be willing to specialize and engage in trade with each otherO10=215AO 10= 1.25AO 10=0.25AO 10=0.15A

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