Macroeconomics
4th Edition
ISBN: 9780393602487
Author: Jones, Charles I.
Publisher: W. W. Norton & Company
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Question
Chapter 19, Problem 6E
a)
To determine
The autarky situation of the economy.
b)
To determine
The free trade situation of the economy.
c)
To determine
The
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Suppose there are two countries Peru and Japan that produce Food and Fuel. Peru can produce 7,523 units of Food or 17,853 units of Fuel using a labour force of 8000. Japan can produce 5,733 units of Food or 24,156 units of Fuel using a labour force of 5000.
(g) If the terms of trade is 2 to 1 in favour of the country with the comparative advantage in food. Determine the combination of the two goods that each country will consume after trade if the country with the comparative advantage in fuel imports 4000 units of food. Label this point B and B* respectively.
h) Who gains from trade? Who loses? What is the impact if any on the world?
(i) What should the terms of trade be to make trade beneficial for BOTH Japan and Peru? Explain.
Suppose that Vietnam has the usual demand and supply curves for producing computers while Myanmar only has a typical demand curve, but it cannot produce computers. Use the three-panel diagram described in Week 2 lecture content to: Show in a set of graphs the free-trade equilibrium for computers. Indicate the equilibrium world price. How does this world price compare to the no-trade price in Vietnam? Indicate how many computers are traded under free international trade. Make sure to state the assumptions. Show graphically and explain the effects of the shift from no trade to free trade on surpluses in each country. Indicate the net national gain or loss from no trade to free trade for each country.
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Analyze the following (2x2) matrix.
Identify the countries having certain advantages.
Moreover, specify the benefits of trade for both countries.
Matrix A
Wheat (bushels/labor hour )
Cloth (yards/labor hour)
United States
6
4
U.K.
1
3
(Numerical values reflect output per unit of input)
Will trade occur? Identify the country having the absolute advantage in wheat and the one having the absolute advantage in cloth.
Identify the production possibility frontiers for both countries.
Show the gains of trade if we assume that the U.S. exchanges 6 units of wheat for 6 units of cloth.
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- Answer the next question(s) on the basis of the following information. Assume that by devoting all its resources to the production of X, nation Alpha can produce 40 units of X. By devoting all its resources to Y, Alpha can produce 60Y. Comparable figures for nation Beta are 60X and 40Y. Refer to the above information. The terms of trade will be at or within the 1X=1¹/2Y to 1X = ²/3Y range. Select one: True Falsearrow_forwardConsider a simple world of 2 countries, Domestic (Dom) and Foreign (For), one good and increasing marginal costs. In autarky: Domestic: QD = 40 – 4*P, Qs = -8 + || 4*P Foreign: QD = 22 – 4*P, Qs = -2 + 8*P a) Discuss the consequences of opening to free trade b) Suppose that after opening to trade Domestic imposes a $2 tariff per unit imported. Assume that Domestic is, in this situation, "Small". Discuss the consequences of the tariff for Domestic only c)Suppose that Domestic was "Large" when it imposed the tariff. Discuss how would the consequences of the tariff be different?arrow_forwardIn Country T, it takes 10 resources to produce 1 ton of cocoa and 13.5 resources to produce 1 ton of rice. In Country Y, it takes 40 resources to produce 1 ton of cocoa and 20 resources to produce 1 ton of rice. Country T has a comparative advantage over Country Y in cocoa. This follows the theory of comparative advantage, and we can say that engaging in free trade benefits all countries that participate in it; however, this conclusion stems from which of these inaccurate assumptions? Multiple Choice We have assumed constant returns to scale. We have assumed the prices of resources and exchange rates in the two countries are dynamic. We have assumed there are barriers to the movement of resources from the production of one good to another within the same country. We have assumed that agrarian nations do not specialize in producing particular products. We have assumed diminishing returns to specialization.arrow_forward
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