3. Gains from trade Consider two neighboring island countries called Felicidad and Bellissima. They each have 4 million labor hours available per week that they can use to produce jeans, corn, or a combination of both. The following table shows the amount of jeans or corn that can be produced using 1 hour of labor. Jeans Corn Country (Pairs per hour of labor) (Bushels per hour of labor) Felicidad 4 16 Bellissima 6 12
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A country has a comparative advantage in producing the good which it produces at a lower opportunity cost than the other country
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- Clipboard Image lools Shapes 100 200 300 400 500 600 700 800 900 1000 1100 The following diagram is for Country A based on the Ricardo madel. Wheat (millions) 30 Terms of Trade E 15 PPF Corn 25 30 50 (millions) Refer to the figure above. Imports of this country equal O 25 million corns O 50 million corns O 15 million wheat O eat 30 million wh +1503, 451px 1 1024 x 744px 1L 1688 × 1240px P Type here to search 1009The country Autarka does not allow international trade.In Autarka, you can buy a wool suit for 3 ounces ofgold. Meanwhile, in neighboring countries, you can buythe same suit for 2 ounces of gold. This suggests thata. Autarka has a comparative advantage inproducing suits and would become a suitexporter if it opened up trade.b. Autarka has a comparative advantage inproducing suits and would become a suitimporter if it opened up trade.c. Autarka does not have a comparative advantagein producing suits and would become a suitexporter if it opened up trade.d. Autarka does not have a comparative advantagein producing suits and would become a suitimporter if it opened up tradeConsider two neighboring island countries called Contente and Euphoria. They each have 4 million labor hours available per month that they can use to produce corn, jeans, or a combination of both. The following table shows the amount of corn or jeans that can be produced using 1 hour of labor. ols Corn Jeans Country (Bushels per hour of labor) (Pairs per hour of labor) Contente 16 A-Z Euphoria 20 Initially, suppose Contente uses 1 million hours of labor per month to produce corn and 3 million hours per month to produce jeans, while Euphoria uses 3 million hours of labor per month to produce corn and 1 million hours per month to produce jeans. Consequently, Contente produces million bushels of corn and 48 million pairs of jeans, and Euphoria produces 15 million bushels of corn and 20 million pairs of jeans. Assume there are no other countries willing to trade goods, so, in the absence of trade between these two countries, each country consumes the amount of corn and jeans it produces. ▼…
- A Moving to another question will save this response. Question 13 Pheef A B D D What could this graph be used to illustrate? O a. The welfare benefits when a country imports a good. O b. How to apply the Big Mac index to the trade model. O c. The welfare effects of a tariff. O d. The welfare benefits when a country exports a good. A Moving to another question will save this response. S Q beef WORLD PRICEAre the following statemen ts true or false? Explain ineach case.a. ''1Wo countries can achieve gains from trade evenif one of the countries has an absolute advantagein the production of all goods."b. "Certain talented people have a comparativeadvantage in everything they do."c. ''U a certain trade is good for one person, it can'tbe good for the other one.''d. ''U a certain trade is good for one person, it isa lways good for the other o ne.''c . "U trade is good for a country, it must be goodfor everyone in the country.''Consider a small country that exports steel. Supposethat a ''pro--trade'' government decides to subsidizethe <:xport of s teel by paying a certain amount for eachton sold abroad. How docs this export subsidy affectthe domestic price of steel, the quantity of steel produced,the quantity of steel consunuxS, and the quantityof steel exported? How docs it affect consumersurplus, producer surplus, g·ovemment revenue, andtolal surplus? Is it a good policy from the standpointof oconomic efficiency? (Hint: The analysis of anexport subsidy is similar to the analysis of a tariff.)
- 7. Country A has a tariff on imported TVs. But,the new government of Country A decided tocharge only half the tariffs against TVs fromcountry B, but keep the full tariff against TVsfrom countries C, D, and E. What would be theimpact on______O.A. The price of TVs in CountryAO.B.Quantity of domestic supply in Country AO.C. Quantity of imports in Country AO.D. Quantity of TVS exported by Country BO.E. Quantity of TVs exported by Countries C, D,and EWhat's Japan import qutoa on rice?ALS ISES V y tools ge Success Tips er Success Tips . SIGN OUT 18 W PPF Shenandoah has a comparative advantage in the production of production of . NNN ALMONDS (Ms of pounds) 3 ****** (spuned to su Shenandoah a comparative advantage. After specialization, the two countries can produce a total of or base Note: Dashed drop lines will automatically extend to both aves. 41 Suppose that Shenandoah and Congaree agree to trade. Each country focuses es resources on producing only the good in which it has a comparative advantage. The countries decide to exchange 8 million pounds of almonds for 8 milion pounds of basil. This ratio of goods is known as the price of trade between Shenandoah and Congaree. The following graph shows the same PPF for Shenandoah as before, as well as its initial consumption at point A. Place a black point (plus symbol)on the graph to indicate Shenandoah's consumption after trade. 16 true 4 False 44 Shenandoah 24 12 ALMONOS (MAons of pounds) 41 40 45 while Congaree has a…
- Are the following staten1ents true or false? Explain ineach case.a. "1wo countries can achicv" gains from trade evenif one of the countries has an absolute advantagein the production of all goods."b. "Certain talented people have a comparativead\'antage in """'}'thing they do."c. "If a certain trade is good for one person, it can'tbe good for the other one.''d . ''If a certain trade is good for one person, it isalways good for the other one."e. "If trade is good for a country, it mLtSt be goodfor everyone in th" country."If a nation lhat does not allow international trade insteel has a domestic price of steel lower than I heworld price, then~ the nation has a comparative a dvan ta~e in oroduc·ing steel and would become a steel exporter if ilopened up trade.h. the nation has a comparative a dvan ta~e in oroduc·ing steel and would become a steel importer if ilopened up trade.c. the nation does not have a comparative advantagein producing steel and would become a steelexporter if it opened up trade.rl. the nation does not have a comparative advantagein producing steel and would become a steelimporter if it opened up trade.If all countries follow a policy of free trade, economists predict that O a. each country will export goods at which it has a comparative advantage at producing and import goods at which it has a comparative disadvantage at producing Ob each country will export goods at which it has a comparative disadvantage at producing and import goods at which it has a comparative advantage at producing Oc there will be no trade between countries - that is, no international trade taking place Od rich countries will be made poorer by trade with poor countries O e. poor countries will be made even poorer by trade with rich countries