Lesotho and Swaziland citizens enjoy Chakalaka and Beer. Suppose that these are the only two products they consume and produce with Chakalaka being relatively more labour-intensive and Beer being relatively more capital-intensive in the production process. Suppose that, as a result of the Southern African Customs Union, all impediments or barriers to trade are lifted, such that these countries can freely trade both goods without any costs. Furthermore, assume that α = 0.8 and ac = 0.2.

Lesotho and Swaziland citizens enjoy Chakalaka and Beer. Suppose that these are the only two products they consume and produce with Chakalaka being relatively more labour-intensive and Beer being relatively more capital-intensive in the production process. Suppose that, as a result of the Southern African Customs Union, all impediments or barriers to trade are lifted, such that these countries can freely trade both goods without any costs. Furthermore, assume that α = 0.8 and ac = 0.2.

MACROECONOMICS

14th Edition

ISBN:9781337794985

Author:Baumol

Publisher:Baumol

Chapter18: International Trade And Comparative Advantage

Section: Chapter Questions

Problem 7DQ

See similar textbooks

Similar questions

In Japan, one worker can make 5 tons of rubber or 80 radios. In Malaysia, one worker can make 10 tons of rubber or 40 radios. Who has the absolute advantage in the production of rubber or radios? How can you tell? Calculate the opportunity cost of producing 80 additional radios in Japan and in Malaysia. (Your calculation may involve fractions, which is fine,) Which country has a comparative advantage in the production of radios? Calculate the opportunity cost of producing 10 additional tons of rubber in Japan and in Malaysia. Which country has a comparative advantage in producing rubber? In this example, does each country have an absolute advantage and a comparative advantage in the same good? In what product should Japan specialize? In what product should Malaysia specialize?
Assume two countries, Thailand (T) and Japan (J), have one good: cameras. The demand (d) and supply (s) for cameras In Thailand and Japan is described by the following functions: QsT=-5+14P QsJ=-10+14P QdT=60-P QdJ=80-P P is the price measured in a common currency used in both countries, such as the Thai Baht. Compute the equilibrium price (P) and quantities in each country without trade. Now assume that free trade occurs. The free-trade price goes to 56.36 Baht. Who exports and Imports cameras and in what quantities?
In Germany it takes three workers to make one television and four workers to make one video camera. In Poland It takes six workers to make one television and 12 workers to make one video camera. Who has the absolute advantage in the production of televisions? Who has the absolute advantage in the production of video cameras? How can you tell? Calculate the opportunity cost of producing one additional television set in Germany and In Poland. (Your calculation may involve fractions, which Is tine.) Which country has a comparative advantage in the production of televisions? Calculate the opportunity cost of producing one video camera in Germany and in Poland. Which country has a comparative advantage in the production of video cameras? In this example, is absolute advantage the same as comparative advantage, or not? In what product should Germany specialize? In what product should Poland specialize?
Are the following statements true or false? Explain ineach case.a. “Two countries can achieve gains from trade evenif one of the countries has an absolute advantagein the production of all goods.”b. “Certain talented people have a comparativeadvantage in everything they do.”c. “If a certain trade is good for one person, it can’tbe good for the other one.”d. “If a certain trade is good for one person, it isalways good for the other one.”e. “If trade is good for a country, it must be good foreveryone in the country
Suppose eachworker in Home can produce 12wheat or 4TVs. Assume that Home has 10workers. Suppose each worker in Foreign can produce 8 wheator 2 TVs.Assume that Foreign has 20 workers.a.What is the no-trade relative price of TVs in Home and Foreign respectively?b.Which country has an absolute advantage in the production of wheat? Which country has a comparative advantage in the production of wheat?c.Use two graphs (one for Home and one for Foreign) to display production possibilities along with indifference curves and label no-trade equilibria and a trade equilibrium constructed by you. (Assume that positive quantities of both goods are consumed in both countries in all equilibria). Pick your own numbers for the relative price in the trade equilibrium and for quantities consumed in the trade and no-trade equilibria for both countries.d.What is the real wage in units of wheat in Home in the no-trade and inyour proposed trade equilibrium?e.Calculate the gains from trade for Home by…
Suppose that Poland and Wales both produce ale and glass. Poland's opportunity cost of producing a pane of glass is 4 kegs of ale while Wales's opportunity cost of producing a pane of glass is 12 kegs of ale. By comparing the opportunity cost of producing glass in the two countries, you can tell thatWales has a comparative advantage in the production of glass andPoland has a comparative advantage in the production of ale. Suppose that Poland and Wales consider trading glass and ale with each other. Poland can gain from specialization and trade as long as it receives more than of ale for each pane of glass it exports to Wales. Similarly, Wales can gain from trade as long as it receives more than of glass for each keg of ale it exports to Poland. Based on your answer to the last question, which of the following prices of trade (that is, price of glass in terms of ale) would allow both Wales and Poland to gain from trade? Check all that apply. 8 kegs of…