Suppose two countries, A and B, trade two goods, Good 1 and Good 2. Production of both goods requires capital (K) and labor (L) and production of one unit of Good 1 requires more capital relative to labor than production of one unit of Good 2. We also know that KA Ka, where upper bars denote the total amount of a factor in a country. LA LB i. State the Heckscher-Ohlin theorem. What does it predict about trade patterns between countries A and B once they open up for trade? ii. Using a production possibility frontier and an indifference curve, draw a diagram that shows no-trade and free-trade equilibrium in country A.
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- Two countries, Cordy and Ceps, can produce two goods (good 1 and good 2). There are two factors of production, labor (measured as hours worked per period of time) and capital (machine hours per time period). The production of good 2 uses labor relatively intensively; product 1 requires relatively more capital. Consider the following figure, which illustrates two different production possibilities (I and II). 1. Good2 II. II. Good1 A) Enter an own value for each country's existing quantity of labor and an own value for each country's quantity of capital so that of each country's amount of capital so that II is Cordy's production possibility frontier. Justify your choice of figures well.Suppose Country A can create 200 tons of capital-intensive goods or 200 tons of labor-intensive goods in one day. Suppose Country B can produce 80 tons of capital-intensive goods or 160 tons of labor-intensive goods in one day. Country A v has the absolute advantage in the production of capital-intensive goods. has the absolute advantage in the production of labor-intensive goods. Country A V has the comparative advantage in the production of capital-intensive goods. Country B V has the comparative advantage in the production of labor-intensive goods.Two countries, Cordy and Ceps, can produce two goods (good 1 and good 2). There are two factors of production, labor (measured as hours worked per period of time) and capital (machine hours per time period). The production of good 2 uses labor relatively intensively; product 1 requires relatively more capital. Consider the following figure, which illustrates two different production possibilities (I and II). 1. Good2 II. 11. Good1 A) Enter an own value for each country's existing quantity of labor and an own value for each country's quantity of capital so that of each country's amount of capital so that II is Cordy's production possibility frontier. Justify your choice of figures well.
- In a day, Julia can produce 12 bushels of wheat or 4 pounds of meat while Carlos can produce 10 bushels of wheat or 2 pounds of meat. If Julia and Carlos work for a day producing what they have comparative advantage in, which of the following price (P) ranges for a bushel of wheat in terms of pounds of meat incentivize both Julia and Carlos to trade with each other A 0.20 < P < 0.33 B 3.00 < P < 5.00 C 1.20 < P < 2.00 D 2.50 < P < 6.00Assume two countries (the U.S. and China) produce and consume only two goods (smartphones and corn) which are produced using only two factors of production (labor and capital). Assume further that the production of corn is capital-intensive, while production of smartphones is labor-intensive. Assume that the U.S. has 200 units of labor and 150 units of capital, while China has 500 units of labor and 150 units of capital. Construct the Edgeworth box for each country. For each Edgeworth box, let the origin for the corn industry be at the bottom left corner of the Edgeworth box, the vertical axis represents labor and the horizontal axis represent capital. Explain how the two Edgeworth boxes differ. Graphically, illustrate the points of efficient production and explain why these points are efficient. (Hint: What are the curves? What do they represent? What are the slopes of these curves? What do the slopes represent?)In Country T, it takes 10 resources to produce 1 ton of cocoa and 13.5 resources to produce 1 ton of rice. In Country Y, it takes 40 resources to produce 1 ton of cocoa and 20 resources to produce 1 ton of rice. Country T has a comparative advantage over Country Y in cocoa. This follows the theory of comparative advantage, and we can say that engaging in free trade benefits all countries that participate in it; however, this conclusion stems from which of these inaccurate assumptions? Multiple Choice We have assumed constant returns to scale. We have assumed the prices of resources and exchange rates in the two countries are dynamic. We have assumed there are barriers to the movement of resources from the production of one good to another within the same country. We have assumed that agrarian nations do not specialize in producing particular products. We have assumed diminishing returns to specialization.
- Consider two countries X and Y that can each produce 4 cars a year. A worker from country X can produce 10 tons of grain a year, whereas a worker from country Y can produce 5 tons of grain a year. To keep things simple, assume that each country has 100 million workers. For this situation, 1- Which country has an absolute advantage in producing cars? 2- Provide a construction of the production possibilities frontier for each country. 3- Construct the opportunity cost table for both countries. 4- Conclude which country has a comparative advantage in which product and how international trade makes each country better off.Assume two countries that produce and consume food and clothing. Country A uses: • 2 hours of labor to produce one unit of food • 6 hours of labor to produce one units of clothing • Has and endowment of 269 hours of labor Country B uses: • 16 hours of labor to produce one unit of food • 4 hours of labor to produce one units of clothing • Has and endowment of 237 hours of labor • Assume the price of food and clothing are equal Find the opportunity cost of food for county A Answer: Assume two countries that produce and consume food and clothing. Country A uses: • 2 hours of labor to produce one unit of food • 6 hours of labor to produce one units of clothing • Has and endowment of 269 hours of labor Country B uses: • 16 hours of labor to produce one unit of food • 4 hours of labor to produce one units of clothing • Has and endowment of 237 hours of labor • Assume the price of food and clothing are equal Find the opportunity cost of food for county B Answer:Assume that two countries Alpha and Beta use a variety of inputs in their production Alpha exports excavating equipment and imports solar cells. Assume furthermore no economies of scale. Select the correct statement from the ones below: Even though there is trade, Alpha has a lower opportunity cost for excavating If the countries did not trade, Alpha would have a lower opportunity cost for excavating Neither country can consume at a point outside its production possibility frontier. Alpha avoids producing solar cells while B avoids producing no excavating
- Consider a region with two export products (gloves and socks) and two local goods (tattoos and manicures). The production of each export good is subject to localization economies, so each city specializes in one export good. According to Mr. Wizard, “If my two assumptions (one for export products and one for local goods) are correct, all the cities in the region will be the same size.” Assume that Mr. Wizard’s logic is correct. List his assumptions and explain why together they imply the region’s cities will be the same size.Suppose countries A and B produce and consume (assuming convex preferences) apples and bananas using only labour. Unit labour cost for apples in country A are 2 and 1 in country B. Unit labour cost for bananas are 5 in country A and 4 in country B. The labour force is the same in both countries, and given by 100 in each country. Which three of the following statements are true? Each country has an absolute advantage. Allowing for international trade, the production of 100 apples and 20 bananas can occur in a global market equilibrium, but not in a market equilibria under autarky. Country A will produce apples, with or without international trade. Under autarky, the relative price for apples (price for apples/price for bananas) equals 0.4 in country A and 0.25 in country B. Country B has an absolute advantage in producing bananas. Allowing for international trade, the production of 60 apples and 40 bananas is feasible, but…Y 100 Country A X Y 40 Country B 40 X 20 a) How much of Good Y will Country B produce if they specialize in their comparative advantage? 40 b) By themselves, if Country B produces 18 units of Y, what is the maximum amount they could produce of Good X? 18 c) If the terms of trade proposed are 5 X for 10Y, how much will Country B be able to consume of Good Y after trade if they specialize in their comparative advantage before trading? 40