2. Suriname and Paraguay consume two goods, coffee and machines, and labour is the only input into production. The amount of labour (in hours) required to produce one unit of each good and labour endowments (L) are: Suriname 15 Paraguay 4 Coffee (lbs.) Machines 3 L 1200 500 Let machines be the numeraire, so that the price of machines is always one, so you must put coffee on the horizontal axis. a. List each country's good(s) of AA and CA, if any, and relate to each country’s autarky (relative) price of coffee. b. If the size of the labour endowment (L) tripled in Paraguay, would your answer to part a. change? Why or why not? For the rest of this question, use the original L. c. Using the PPF diagram, show Paraguay's complete autarky equilibrium and solve for Paraguay's production and consumption of each good if its total consumption of machines in autarky is 100. Be sure to label as many points as you can. d. If the world (or FT) (relative) price of coffee is 4, and Suriname consumes 100 machines in FT, draw Paraguay's complete free-trade (FT) eqm using the PPF diagram. Be sure to calculate (and show) Paraguay's production, consumption, exports and imports (if any) of each good under FT. Check to see that trade is balanced. e. Prove using the appropriate wage information that Suriname gains from trade. f. Use the world supply of coffee to derive the world PPF. Indicate the correspondence in the two diagrams of all regions and points. Label as many points as you can (endpoints, etc.); show where the FT outcome occurs. g. Explain under what circumstances the FT price of coffee would 5. Which country(ies) would gain from free trade?
2. Suriname and Paraguay consume two goods, coffee and machines, and labour is the only input into production. The amount of labour (in hours) required to produce one unit of each good and labour endowments (L) are: Suriname 15 Paraguay 4 Coffee (lbs.) Machines 3 L 1200 500 Let machines be the numeraire, so that the price of machines is always one, so you must put coffee on the horizontal axis. a. List each country's good(s) of AA and CA, if any, and relate to each country’s autarky (relative) price of coffee. b. If the size of the labour endowment (L) tripled in Paraguay, would your answer to part a. change? Why or why not? For the rest of this question, use the original L. c. Using the PPF diagram, show Paraguay's complete autarky equilibrium and solve for Paraguay's production and consumption of each good if its total consumption of machines in autarky is 100. Be sure to label as many points as you can. d. If the world (or FT) (relative) price of coffee is 4, and Suriname consumes 100 machines in FT, draw Paraguay's complete free-trade (FT) eqm using the PPF diagram. Be sure to calculate (and show) Paraguay's production, consumption, exports and imports (if any) of each good under FT. Check to see that trade is balanced. e. Prove using the appropriate wage information that Suriname gains from trade. f. Use the world supply of coffee to derive the world PPF. Indicate the correspondence in the two diagrams of all regions and points. Label as many points as you can (endpoints, etc.); show where the FT outcome occurs. g. Explain under what circumstances the FT price of coffee would 5. Which country(ies) would gain from free trade?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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part g please
Transcribed Image Text:2. Suriname and Paraguay consume two goods, coffee and machines, and labour is the only input into production. The amount
of labour (in hours) required to produce one unit of each good and labour endowments (L) are:
Suriname
15
3
Paraguay
4
Coffee (lbs.)
Machines
2
L
1200
500
Let machines be the numeraire, so that the price of machines is always one, so you must put coffee on the horizontal axis.
a. List each country's good(s) of AA and CA, if any, and relate to each country's autarky (relative) price of coffee.
b. If the size of the labour endowment (L) tripled in Paraguay, would your answer to part a. change? Why or why
not? For the rest of this question, use the original L.
c. Using the PPF diagram, show Paraguay's complete autarky equilibrium and solve for Paraguay's production and
consumption of each good if its total consumption of machines in autarky is 100. Be sure to label as many points as you can.
d. If the world (or FT) (relative) price of coffee is 4, and Suriname consumes 100 machines in FT, draw Paraguay's
complete free-trade (FT) eqm using the PPF diagram. Be sure to calculate (and show) Paraguay's production, consumption,
exports and imports (if any) of each good under FT. Check to see that trade is balanced.
e. Prove using the appropriate wage information that Suriname gains from trade.
f. Use the world supply of coffee to derive the world PPF. Indicate the correspondence in the two diagrams of all
regions and points. Label as many points as you can (endpoints, etc.); show where the FT outcome occurs.
g. Explain under what circumstances the FT price of coffee would 5. Which country(ies) would gain from free trade?
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