Under David Ricardo's theory of comparative advantage, assume you havethe following hypothetical marginal cost data (expressed in a commoncurrency) for England and Portugal for the two goods, wine (W) and cloth(C). (Also assume only two countries in the world).MARGINAL COSTSENGLANDPORTUGALWine (W)8Cloth (C)42If we now let total resource costs to be fixed for each country at 100:3a) Write down the production possibility equation for England andPortugalb) Derive the equations for the rate of product transformation for each ofthe two countriesc) Now assume that prior to trade each country devotes half (i.e., 50%)of its resources to each good, how much wine and cloth will bothEngland and Portugal produce respectively?d) Show mathematically that the world output can be unambiguouslyincreased if England were to produce less wine (W) and more cloth(C) with the opposite change occurring in Portugal.e) Would any output pattern short of complete specialization promise anambiguous improvement over this allocation?f) If production possibility curves (PPC) were concave rather thanlinear, is complete specialization likely to be efficient?QUESTION 3a) State the "infant industry argument". What are the merits and demeritsof this argument?b) Using simple diagrammatic exposition, show why tariffs are thoughtto be inefficient and why they lead to the so-called "cost ofprotection". Indicate the effects of tariffs on:(i)(ii)(iii) Production(iv) Imports(v)c) What are quotas? Show why a quota which reduces imports and raisesdomestic production of a good to the same level as a tariff may not beDomestic pricesConsumptionIncome4equivalent. Under what assumptions would the quota and the tariff beequivalent? QUESTION 1The first observation to be made about technical progress is that historically,the rate of growth of outputs over time has exceeded the growth rate that canbe attributed to the growth in conventionally defined inputs. LettingQ = A(t) f(K, L)(1)be the production function for society's output as a whole. The term A(t) inthe function represents all the influences that go into determining Q otherthan K (machine-hours) and L (labor-hours) so that changes in A over timerepresent technical progress. For this reason, A is shown as a function ofdA>0time and presumably dt; that is, particular levels of labor and capitalbecome more productive over time.Using equation (1) above, show:(e,«.)a) The elasticity of output with respect to capital inputb) The elasticity of output with respect to labor input(e,.)c) Show that the growth rate in output can be broken into the sum of twocomponents, that is, growth attributed to changes in inputs (K and L)and other "residual" growth (that is changes in A) that represents2(*)technical progress (Hint: for any variable X, X is the proportionalrate of growth of X per unit of time denoted as G.).d) Now given Co = 2.75per yearG¸ =1.00 Percent per yearG =1.75 Percent per yearCo1 = 0.65ey.k = 0.35Show the contribution of technical progress as opposed to growth inphysical quantities of factors of production (hint 2: take the total derivativeof equation 1, with respect to time)QUESTION 2Under David Ricardo's theory of comparative advantage, assume you havethe following hypothetical marginal cost data (expressed in a commoncurrency) for England and Portugal for the two goods, wine (W) and cloth(C). (Also assume only two countries in the world).MARGINAL COSTSENGLANDPORTUGALWine (W)8Cloth (C)42If we now let total resource costs to be fixed for each country at 100:

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Under David Ricardo's theory of comparative advantage, assume you have the following hypothetical marginal cost data (expressed in a common currency) for England and Portugal for the two goods, wine (W) and cloth (C). (Also assume only two countries in the world). MARGINAL COSTS ENGLAND PORTUGAL Wine (W) 8. 2 |Cloth (C) 4 2 If we now let total resource costs to be fixed for each country at 100:

Under David Ricardo's theory of comparative advantage, assume you have the following hypothetical marginal cost data (expressed in a common currency) for England and Portugal for the two goods, wine (W) and cloth (C). (Also assume only two countries in the world). MARGINAL COSTS ENGLAND PORTUGAL Wine (W) 8. 2 |Cloth (C) 4 2 If we now let total resource costs to be fixed for each country at 100:

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Suppose that France and Germany both produce wine and cheese. The table below shows combinations of the goods that each country can produce in a day. Germany France Wine (Bottles) Cheese (Pounds) 0 1 2 3 4 8 6 4 2 0 Wine (Bottles) 0 1 2 3 4 5 Cheese (Pounds) 20 16 12 8 4 0 Who has the comparative advantage in producing wine and who has the comparative advantage in producing cheese? O A. Germany has a comparative advantage producing wine and cheese. OB. Neither has a comparative advantage producing wine or cheese. O C. France has a comparative advantage producing cheese and Germany has a comparative advantage producing wine. France has a comparative advantage producing wine and cheese. O D. O E. France has a comparative advantage producing wine and Germany has a comparative advantage producing cheese. Suppose that France is currently producing 1 bottle of wine and 6 pounds of cheese and Germany is currently producing 3 bottles of wine and 8 pounds of cheese. Then, assume instead that…