Use the two-country Ricardian Model with free trade to graphically analyze the effects of the following changes (one at a time). Assume that the Home country has a comparative advantage in Food (the other good being Cloth), and that in the initial equilibrium, both countries specialize completely. You may assume, if it is helpful, that preferences are identical and homothetic in the two countries. a. Draw diagrams that illustrate the PPF, prices, and indifference curves in the Home and in the Foreign market in this setting (2 figures), as well as the trade equilibrium (supply vs demand). b. Illustrate the effect of an increase in the Foreign labor force in the three diagrams. Explain how relative prices change. c. Illustrate the effect of an increase, by the same percentage in both industries, in the Home country's productivity in producing both Food and Cloth.

Use the two-country Ricardian Model with free trade to graphically analyze the effects of the following changes (one at a time). Assume that the Home country has a comparative advantage in Food (the other good being Cloth), and that in the initial equilibrium, both countries specialize completely. You may assume, if it is helpful, that preferences are identical and homothetic in the two countries. a. Draw diagrams that illustrate the PPF, prices, and indifference curves in the Home and in the Foreign market in this setting (2 figures), as well as the trade equilibrium (supply vs demand). b. Illustrate the effect of an increase in the Foreign labor force in the three diagrams. Explain how relative prices change. c. Illustrate the effect of an increase, by the same percentage in both industries, in the Home country's productivity in producing both Food and Cloth.

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

a) Use a production possibilities frontier to describe the idea of trade-off. b) Accumulation of capital and change in technology bring economic growth, which means that the PPF keeps shifting outward: Production that was unattainable yesterday becomes attainable today; production that is unattainable today will become attainable tomorrow. Why doesn’t this process of economic growth mean that scarcity is being defeated and will one day be gone?
Assume a Ricardian model. The following table shows the amount of output produced by each unit of labor in Germany and France and also the amount of labor available in those countries. Wheat (W) Computers (C) France 5 8 Germany 2 4 (a) Under free trade each country completely specializes in the good in which it has comparative advantage. Germany has 90,000 units of labor. Germany consumes 105,000 tons of wheat whether it is in autarky (no trade) or in free trade. Suppose under free trade the terms of trade are 1W = 1.75C. How many computers does Germany gain when its economy moves from autarky to free trade? Fermany produces Comparative wheat 525d = 0) once advantage. trade
Consider two outcomes in a pure exchange economy: Outcomes 1 and 2. Outcome 1 is Pareto efficient. Outcome 2 is not Pareto efficient. With reference to the following statement “Moving from Outcome 2 to Outcome 1 is a Pareto improvement” which of the following is true? A) This must be the case as Outcome 2 is not Pareto efficient and Outcome 1 is. B) This may be the case if both Outcomes are equilibria. C) This cannot be if the endowment means that both Outcomes are affordable. D) This is only the case if no-one is made worse off moving from Outcome 2 to 1.
Given a concave PPC and l-curve in country Y for goods A and B, state the conditions for maximum output and consumption if the country engages in exporting good to country Z and importing good B from country Z.
When a country has a comparative advantage in the production of a good, it means that it can produce this good at a lower opportunity cost than its trading partner. Then the country will specialize in the production of this good and trade it for other goods. The following graphs show the production possibilities frontiers (PPFs) for Glacier and Rainier. Both countries produce corn and basil, each initially (i.e., before specialization and trade) producing 18 million pounds of corn and 9 million pounds of basil, as indicated by the grey stars marked with the letter A. BASIL (Millions of pounds) 48 42 36 30 24 18 12 6 0 0 PPF 6 Glacier A 12 18 24 30 36 CORN (Millions of pounds) 42 48 ? BASIL (Millions of pounds) 48 42 36 30 24 18 12 6 0 0 PPF I + 6 Rainier 12 18 24 30 36 CORN (Millions of pounds) I 42 48 (?) Glacier has a comparative advantage in the production of while Rainier has a comparative advantage in the production of Suppose that Glacier and Rainier specialize in the production…
Suppose you have a team of two workers: one is a baker and one is a chef. Your baker is talented but is inexperienced. Your chef is not only an elite chef but is also faster at baking. If your kitchen specialized according to absolute advantage, who would do the cooking? Who would do the baking? If your kitchen specialized according to comparative advantage, who would do the cooking? Who would do the baking? Which approach above is more efficient? Explain your answer.
When a country specializes in the production of a good, this means that it can produce this good at a lower opportunity cost than its trading partner. Because of this comparative advantage, both countries benefit when they specialize and trade with each other. The following graphs show the production possibilities frontiers (PPFS) for Maldonia and Lamponia. Both countries produce lemons and sugar, each initially (i.e., before specialization and trade) producing 24 million pounds of lemons and 12 million pounds of sugar, as indicated by the grey stars marked with the letter A. (? (?) Maldonia Lamponia 64 64 56 56 48 PPF 48 40 40 32 32 24 24 PPF 16 16 16 24 32 40 48 56 64 16 24 32 40 48 56 64 LEMONS (Millions of pounds) LEMONS (Millions of pounds) Maldonia has a comparative advantage in the production of production of while Lamponia has a comparative advantage in the . Suppose that Maldonia and Lamponia specialize in the production of the goods in which each has a comparative advantage.…
advantage. The countries decide to exchange 24 million pounds of peas for 24 million pounds of pistachios. This ratio of goods is known as the price of trade between Yosemite and Congaree. The following graph shows the same PPF for Yosemite as before, as well as its initial consumption at point A. Place a black point (plus symbol) on the graph to indicate Yosemite's consumption after trade. Note: Dashed drop lines will automatically extend to both axes. The following graph shows the same PPF for Congaree as before, as well as its initial consumption at point A. As you did for Yosemite, place a black point (plus symbol) on the following graph to indicate Congaree's consumption after trade.