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Explain the implications of convergence in relative prices when two countries ( say Home and Foreign) trade.
Why do we use general equilibrium analysis rather than partial equilibrium analysis to study
How can we explain the lower flat section and the upper flat section of the Relative Supply (RS) curve?
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- Why do we use general equilibrium analysis rather than partial equilibrium analysis to study comparative advantage? ExplainWhat is the relationship between production costs and comparative advantage? Group of answer choices Comparative advantage considers, “How much am I giving up to produce this good in this country?” Comparative advantage identifies the good for which the producer’s absolute advantage is relatively smaller. Comparative advantage identifies where the producer’s absolute productivity disadvantage is relatively larger. Comparative advantage happens when the production costs for both trading partners are the same.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…
- using partial equilibrium analysis, explain how is the equilibrium relative commodity prices between two nations determined and explain why is it the equilibrium relative commodity price between two nations?How the equilibrium relative commodity prices can be set with trade according to the equilibrium analysis? Explain the attached picture.The Scenario : Suppose that the market for good X is small in Malaysia and in Thailand , relative to the world market for good X . Both these markets are currently open to free trade . Suppose also that , relative to the rest of the world , Malaysia has a comparative advantage in producing good X whilst Thailand has a comparative disadvantage in producing good X. Malaysian consider good X a normal good , whereas Thais consider good X an inferior good . The Question : Using a set of appropriate diagrams ( with demand and supply curves ), show the comparison between the Malaysian and Thai markets for good X (side by side) - when an economic recession hits both Malaysia and Thailand simultaneously. Explain what happens to the price of good X in each country, as well as the quantity demanded, quantity supplied, and the quantity imported/exported. make sure that you include welfare tables and briefly explain the welfare effects on consumers, producers, and society as a whole - for each…
- Consider an exchange economy with 2 agents and 2 goods. In an Edgeworth-Bowley diagram, show and illustrate that if both agents have the same preferences, the contract curve is a straight line from the bottom left-hand corner to the top right-hand corner. Does it follow that if the agents do not have the same preferences, the contract curve is not a straight line? Suppose the two agents have the same endowments and the same preferences. Is mutually beneficial trade possible? Illustrate in an Edgeworth Bowley diagram. State and explain Walras Law. What are the implications of Walras’s Law? Illustrate Walras Law in an Edgeworth-Bowley diagram.According to comparative advantage, trade between two countries Group of answer choices will benefit all the industries in each of the countries. guarantees that consumption levels will be equal in the two countries. maximizes the amount of inputs that are used in the production of all products. allows each of the trading countries to allocate its resources most efficiently.After specialization, suppose the two agree on a price of 7 units of good X for each unit of good Y. When the two individuals make the trade, they exchange 140 units of good X for 20 units of good Y. Recall that the individual who has specialized in the production of X would trade 140 units of good X and receive 20 units of good Y, while the individual who specialized in the production of good Y would trade 20 units of good Y and receive 140 units of good X.
- In this problem, we want to think about the difficulties that governments face in agreeing to significantly reduce CO2 emissions in order to control climate change. In the context of climate change, what phenomenon does China’s utility function capture? What does this exercise tell us about the limitations of the first welfare theorem? What do you think is an important aspect of trade in reality which is not captured by this model?In a situation where two goods can be produced by two different people, it is possible for one person to have a comparative advantage in the production of both goods and the other person to have the comparative advantage in the production of neither good. Group of answer choices True FalseFor each good produced in a market economy, demand and supply determine Comparative advantage The price of the good sold in the market, but not the quantity bought and sold in the market The quantity of the good bought and sold in the market, but not the price Both price and quantity of the good bought and sold in the market Neither price nor quantity is determined by demand and supply because prices are ultimately set by producers