Consider the following example of the Ricardian model Units of labor required per unit of output: France (F) Italy (I) 5 2 Beef (B) Corn (C) 3 4 Labor Force 50000 (a) Determine which country has an absolute advantage in which good and which country has a comparative advantage in which good. Compute opportunity cost ratios and relative autarky prices, defined as PC/PB. 48000 (b) Draw the PPFs (put C on the horizontal axis) and label endpoints with appropriate figures. Supposing that each country splits its labor force in half between C and B in

Consider the following example of the Ricardian model Units of labor required per unit of output: France (F) Italy (I) 5 2 Beef (B) Corn (C) 3 4 Labor Force 50000 (a) Determine which country has an absolute advantage in which good and which country has a comparative advantage in which good. Compute opportunity cost ratios and relative autarky prices, defined as PC/PB. 48000 (b) Draw the PPFs (put C on the horizontal axis) and label endpoints with appropriate figures. Supposing that each country splits its labor force in half between C and B in

ENGR.ECONOMIC ANALYSIS

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Chapter1: Making Economics Decisions

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Problem 1QTC

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Welfare Analysis

Welfare analysis of the society is related to welfare economics. From the economic point of view former welfare economics refers to that subject which uses the techniques of microeconomics to analyse and evaluate the welfare at the economic or aggregate level.

Question

1. Consider the following example of the Ricardian model
Units of labor required per unit of output:
France (F) Italy (I)
5
2
Beef (B)
Corn (C)
3
4
Labor Force
(a) Determine which country has an absolute advantage in which good and which country has
a comparative advantage in which good. Compute opportunity cost ratios and relative
autarky prices, defined as PC/PB.
48000
50000
(b) Draw the PPFs (put C on the horizontal axis) and label endpoints with appropriate
figures. Supposing that each country splits its labor force in half between C and B in
autarky, show the autarky equilibrium.
(c) Now let the price ratio established in trade equal (Pc/PB)* = 1.0 and suppose France
exports 500 units of beef. Determine each country's imports and exports, show the
equilibrium trade triangles and compute the gains from trade for each country in terms
of units of B and C. Briefly indicate which country gets larger gains and why.

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