EBK MACROECONOMICS (FOURTH EDITION)
4th Edition
ISBN: 9780393616125
Author: Jones
Publisher: YUZU
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Question
Chapter 19, Problem 7E
a)
To determine
The reason for the trade.
b)
To determine
The effect of southern innovation in north.
c)
To determine
The case of free trade.
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Y
100
Country A
X
Y
40
Country B
40
X
20
a) How much of Good Y will Country B produce if they specialize in their comparative advantage? 40
b) By themselves, if Country B produces 18 units of Y, what is the maximum amount they could produce of Good X? 18
c) If the terms of trade proposed are 5 X for 10Y, how much will Country B be able to consume of Good Y after trade if they specialize in
their comparative advantage before trading? 40
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.
home cheese alc=1hr/kg wine alw=2hrs/gallon
foreign cheese alc*=6hrs/kg wine alw*=3hrs/gallon
Calculate the Home country's opportunity cost of producing cheese.
In which product does the Home (Foreign* ) country has an absolute advantage?
Show in which product does the Home (Foreign* ) country has comparative advantage?
Calculate the relative supply (RS)
With trade, what is the equilibrium range that the relative price of cheese to wine will settle?
Supposing that the intersection of RS and RD occurs at PC /PW = 1, what is the implication?
Chapter 19 Solutions
EBK MACROECONOMICS (FOURTH EDITION)
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