Draw a PPF for each country. (b) Which country has a comparative advantage in magic wands and why? (c) What is the possible maximum relative price of a magic wand in the trade equilibrium? What is its possible minimum price?
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Problem 1. This problem is based on the Ricardian Model. Assume that 2 countries, Gryffindor and Slytherin, use troll labor to produce 2 goods, magic wands and chocolate frogs.
(a) In Slytherin, 1 troll can produce 6 magic wands or 10 chocolate frogs, while in Gryffindor the production of 1 magic wand requires 2 trolls and the production of 1 chocolate frog requires 1 troll. Assume that there are 10 trolls in Slytherin and 20 trolls in Gryffindor. Draw a
(b) Which country has a
(c) What is the possible maximum relative
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- 1. The assertion of the Lewis Model is that economic growth and industrialization will take place backed by surplus labor from the rural subsistence economy. Give three arguments either for or against the assertion with examplesUsing the Ramsey-Cass-Koopmans Model, what policy would best improve the economic development of a country? 1) to encourage its citizens to save 2) to gift/aid the country with items that support its production capacity (machineries, harbours, ..) 3) to encourage/transfer know-how and productivity on how to extract outputs from inputs (R&D, patents, institutions, ..) What does the Ramsey model suggest about this question? Explain in detail, supporting your answer with graphs, being explicit about the dynamics of the model and about how you interpret the policy within the model?Consider two countries, A and B. Assume that both countries have identical physical endowments of iron ore. In country A, any profits made from mining the iron ore are subject to confiscation by the government. While in country B, there is no such risk. How does the risk of expropriation affect the economic success of the two nations? Which nation would you think would be richer? Why? Use vocabulary learned in our textbook chapters to explain. Given your answer to the above, why is there widespread political support for government policies that expropriate resources from some groups for the sole purpose of handing them out to other groups? Consider this: How do uncontrolled ransomware attacks destabilize the rule of law?
- 3. True or False? The gravity model states that trade between two countries will increase if the size of either country’s economy increases and the distance between the two countries is bigger. Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.Suppose there are two contrasting impacts of a massive war, where a large number of countries were involved (e.g. World War II), on two large countries (Ping and Pong) in the world. Ping suffered a massive destruction of its capital stock relative to its population, while Pong suffered a huge loss of its population relative to its capital stock. That is, capital labour ratio suddenly fell in Ping and rose in Pong. For simplicity that all other things remained same. Assuming that both the country were in steady-state before the war, show the impact of the war on these two countries using a Solow diagram (i.e., capital labour ratio on the horizontal axis and output and savings on the vertical axis). Clearly draw and write your answerRicardian Model) In class we worked through the trade example where Home had a comparative advantage in cheese (alc /alw < alc* /alw*). The result was that world price ratio was between the autarky price ratios of the two countries. We showed for the Home country that the opening of trade resulted in the workers’ real wage in terms of cheese remaining the same while the real wage in terms of wine increased. (There is no need to use diagrams to answer the questions below.) (a) With the opening of trade what will the nominal wage W* be in the Foreign country? (You will not be able to find a numerical value here.) Briefly explain. (b) What will happen with the opening of trade to the Foreign country’s real wage in terms of cheese and wine? Briefly explain
- 4. Discuss whether state or market solutions to development problems are preferable by evaluating whether these statements are true or false. Use production function specifications (such as a Solow model with two types of capital) and graphs to prove your points. Give examples in African countries of good and bad policies and outcomes to illustrate your arguments in a through d.a. Markets get the desirable allocation right when all inputs to production are private goods and there is perfect competition.b. It is desirable that the government allow Free Trade rather than kill trade off with punitive taxes and controls.c. State intervention is needed when some inputs to production are public goods (give the definitions explaining how public goods differ from private goods).d. Whether market solutions are preferable to state intervention in a particular case depends on whether private payoffs and social payoffs are aligned.Assume that Trinbago is a small country that produces wine and motor vehicles, where motor vehicles are capital intensive. Trinbago is also capital intensive, and the standard Heckscher -Ohlin (H-O) assumptions hold. The other country in the model is Vincyland. What recommendations would you give?Suppose that each worker in France can produce either 20 units of food per hour or 80 units of machinery per hour. At the same time, workers in Belgium can produce either 80 units of food per hour or 320 units of machinery per hour. Will the two countries trade according to the Ricardian model? If yes, which country will specialize in the production of machinery and which country will specialize in the production of food? In no, why not?
- What is the definition of Capital Flight? What are the causes of Capital Flight? How to recovery from Capital Flight? Summarize the Venezuela economy and oil dependency as an example of Capital Flight. Mention another case of an economy as an example of capital flight. Discuss the causes and consequences in that economy, and suggest some policy can help such economies to recover from capital flight phenomenaExplain what gains from trade are. Use the Ricardian model to explain the how an economy obtains gains from trade.1. Why do you think many big corporations like Apple, Coca-Cola, Microsoft, choose to manufacture their products in countries located in the Global South than in the Global North? 2. Based in your knowledge, why rich countries become richer and poor countries become poorer? Support your idea.
