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Assume two countries: H and F. If the world terms of trade for a country are somewhere between the domestic cost ratio of H and that of F, then

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Assume two countries: H and F. If the world terms of trade for a country are somewhere between the domestic cost ratio of H and that of F, then

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Trade theories suggest that both countries gain from trade. In a 2-country, 2-good model, we assume the 2 states—Futland and Tandam share a common currency (allowing us to ignore exchange rate), they both have the same wages, and they both produce two goods: bicycles and boots. The units of labour requirement are shown below, assuming constant returns to scale. Production Techniques: Units of labour hour required per unit output Tandom Futland Bicycles 90 hours 120 hours Boots 30 hours 50 hours Define opportunity cost. Using the table above, calculate the opportunity cost of bicycles in terms of boots and the opportunity cost of boots in terms of bicycles for each of the countries.
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Choose four countries. One country in North America, another country in Central America, another country in the Caribbean and another country in South America and indicate, using the gravity model, which factors should increase or reduce trade between those countries. After that, choose a country in Europe and indicate, using the Gravity Model, how the intensity of trade changes with five countries. You must take into account the concept of the gravity model and the factors that affect trade such as language, culture, trade agreements, among others. Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.
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