1. A simple Ricardian model Consider a simple economy consisting of two countries, England and France. England has 25 workers and France has 75 workers. England can produce 4 units of grain and 2 units of cloth with each unit of labor. France can produce 1 unit of grain and 1 unit of cloth with each unit of labor. Wages per unit of labor are the same in both countries. a. Which country has the absolute advantage in each good? Which country has the comparative advantage in each good? Explain your answers. b. Construct the production possibilities frontier for each country (put grain on the x-axis and cloth on the y-axis). What is its slope? c. Assume that consumers have utility U = grain/2 . cloth/2. How much does each country produce and consume of each good in autarky? Show the consumption graphically by drawing the indifference curves into your two diagrams.

1. A simple Ricardian model Consider a simple economy consisting of two countries, England and France. England has 25 workers and France has 75 workers. England can produce 4 units of grain and 2 units of cloth with each unit of labor. France can produce 1 unit of grain and 1 unit of cloth with each unit of labor. Wages per unit of labor are the same in both countries. a. Which country has the absolute advantage in each good? Which country has the comparative advantage in each good? Explain your answers. b. Construct the production possibilities frontier for each country (put grain on the x-axis and cloth on the y-axis). What is its slope? c. Assume that consumers have utility U = grain/2 . cloth/2. How much does each country produce and consume of each good in autarky? Show the consumption graphically by drawing the indifference curves into your two diagrams.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

If France is said to have an absolute advantage over Mexico in the production of wheat, this means that, given the same resources, Mexico must have an absolute advantage in producing some good other than wheat. a. France can produce more wheat than Mexico. b. France has an absolute advantage in all goods that are complements to wheat. c. France must have an absolute advantage over Mexico in producing all goods. d. Mexico must have a comparative advantage over France in the production of wheat.
For the closed economy: -Draw the production possibilities curves for Italy and Spain by explaining them separately. - in Spain in the case of a closed economy and The price of white scarves (in terms of red scarves) in Italy what? - Which country is absolute in the production of which color scarf has the upper hand? Explain in detail. - Which country should be compared in the production of which color scarf? has the upper hand? Explain in detail. - When countries open up, what color scarf each is exported? will?
What is the trade balance between the U.S. and China from 2018 to 2020?Graph the year and trade balance (exports – imports) using year for horizontal axis and trade balance for vertical axis. What is the difference between absolute advantage and comparative advantage? Which among these 2 concepts is the basis of trade? Suppose that an American worker can produce 1000 shirts or 200 computers, while a Chinese worker can produce 1000 shirts or 100 computers.In the US, what is the opportunity cost of producing an additional shirt (measured in terms of foregone computers)?
1. Analyze the following two countries with linear production technologies and one factor of production. The production technology is given by the following labor requirements: Hot Dogs (labor per unit) Maple Syrup (labor per gallon) USA Canada 1 3 2 1 Each country has 600 hours of labor. a. Which country has the absolute advantage in producing hot dogs? Explain. b. What is the opportunity cost of hot dogs in the US? In Canada? c. Which country has a comparative advantage in each good? Explain. d. What is the range of prices for each good under which both countries will gain from trade? Explain. e. Suppose that the world price of a unit of hot dogs is 1 gallon of maple syrup. Draw a large, clear new graph for each country (put hot dogs on the X axis) showing the autarky equilibrium and the free trade equilibrium (including the trade triangle showing the levels of imports and exports). f. Who gains from free trade in this model? Briefly explain why or why not.
Robinson can catch 1 fish or gather 2 coconuts. in an hour, Bill can catch 1 fish or gather 1coconut. In an hour, Chris can catch 8 fish or gather 2coconuts a. If production is organized according to comparative advantage, in what order will the three inhabitants collect coconuts? (That is, if only one of the three collects coconuts, who will it be? And if two of them collect coconuts, which two will it be?) b. Draw the production possibilities curve (PPC) when there is no specialization—that is, when each worker divides their time between fish and coconuts in the same way as the other two workers. Identify and explain the vertical intercept, the slope, and the horizontal intercept of the PPC in this case.
Morocco and Tunisia both have Mediterranean climates that are excellent for producing/harvesting green beans and tomatoes. In Morocco it takes two hours for each worker to harvest green beans and two hours to harvest a tomato. Tunisian workers need only one hour to harvest the tomatoes but four hours to harvest green beans. Assume there are only two workers, one in each country, and each works 40 hours a week. a. Identify which country has the absolute advantage in green beans and which country has the absolute advantage in tomatoes. b. Identify which country has comparative advantage in which product. c. Initially each country used ½ of the workers in producing green beans and tomatoes. If each country specializes based on comparative advantage find an exchange mechanism so that both gain from trade.
Multiple-Choice Questions 1. If a nation has an absolute advantage in the production of a good, a. b. C. d. e. 2. If a nation has a comparative advantage in the production of a good, it can produce that good at a lower opportunity cost than its trading partner. it can produce that good using fewer resources than its trading partner. it can benefit by restricting imports of that good. it will specialize in the production of that good and export it. none of the above is true. a. b. it can produce that good at a lower opportunity cost than its trading partner. it can produce that good using fewer resources than its trading partner. it can benefit by restricting imports of that good. C. d. it must be the only country with the ability to produce that good. none of the above is true. e. 3. Which of the following statements about trade is true? a. Unrestricted international trade benefits every person in a country equally. b. People that are skilled at all activities cannot benefit from…
Assume that England and Spain can switch between producing cheese and producing bread at a constant rate. Labor Hours Needed to Make 1 Unit of Number of Units Produced in 40 Hours Cheese Bread Cheese Bread England 1 4 40 10 Spain 4 8 10 5 Refer to Table 3-5. England has a comparative advantage in the production of a. neither good and Spain has a comparative advantage in the production of both goods. b. bread.
B) Comparative Advantage 1. Country A has 100 workers and Country B has 100 workers. Every worker in Country A can produce 6 tons of wheat per year, or can produce 12 tons of corn per year. Every worker in Country B can produce 2 tons of wheat per year, or can produce 10 tons of corn per year. a. Which country has an absolute advantage in wheat? b. Which country has an absolute advantage in corn? c. Which country has a comparative advantage in wheat? d. Which country has a comparative advantage in corn? Suppose initially the countries do not trade and Country A has 50 workers producing corn and 50 producing wheat. Country B has 30 workers producing corn and 70 producing wheat. Fill out the following table: Country A Country B Corn Produced Wheat Produced Now the two countries trade with one another. e. What good does Country A specialize in? f. What good does Country B specialize in? If these countries have all workers produce the product that their country has a comparative advantage…
Say that Alland can produce 24 units of food per person per year or 6 units of clothing per person per year, but Georgeland can produce 36 units of food per year or 6 units of clothing. Which of the following is true? Georgeland has a comparative advantage, but not an absolute advantage, in producing food. Georgeland has both a comparative and absolute advantage in producing food. Alland has both absolute advantage and comparative advantage, in producing food.
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 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?
In the Heckscher-Ohlin model, suppose the two factors of production are: high-skilled labor (H) and regular labor (L). The two sectors are manufacturing and business services. Manufacturing uses regular labor more intensively, and business services uses high-skilled labor more intensively. The two countries are the U.S. and China, and the U.S. has a comparative advantage in business services. a. Illustrate the effect of opening up to trade on the U.S. with the PPF and indifference curve diagram. Make sure you clearly label everything. What happens to the relative price of business services in the U.S.? Show clearly the gains from trade. b. What happens to the relative wage of high-skilled labor? Does inequality (the skill premium) increase? Show all work and explain. 2. Evidence for or against Heckscher-Ohlin model Leontieff Paradox i. Briefly describe the paradoxii.We discussed several explanations for the paradoxical result in class. Briefly describe two explanations. Inequality…