Using the partial equilibrium framework and relevant diagram, explain how equilibrium relative world commodity price is determined if two nations decide to trade.
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Using the partial equilibrium framework and relevant diagram, explain how equilibrium relative world commodity price is determined if two nations decide to trade. |
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- Give three examples of trade in servieces and explain how comparative advantage may play a role in them. Do you think there are other factors at work than comparative advantage?The United States and Canada have the production possibilities curves shown above. It is determined that the United States has the comparative advantage in peanuts. Will both nations gain from trade if the terms of trade that are offered are 1 Peanut= 2 Corn? Why or why not?Two countries (Home and Foreign) use labor to produce two goods: Cloth and Wheat. The number of units of the good that can be produced by one unit of labor are given below. The number of units of labor in the Home And Foreign countries are 10 and 30, respectively. a) Calculate the opportunity costs of Cloth in the two countries, briefly describing your calculation. What are the goods in which the countries have comparative advantage? b) Use appropriate examples for world price and indifference curves to show that both Home and Foreign benefit from trade. Mention the world price, and the point where production and consumption occur in the two countries after trade. Wheat Cloth Home 12 3 Foreign 4 2
- The table below shows the maximum quantities of two goods that each country can produce. If the countries follow the principle of comparative advantage, which of the following is a potential benefit of trade? Vibranium (tons) Gold (tons) Wakanda 8 tons 2 tons Zamunda 2 tons 1 ton Group of answer choices Trade can allow each country to increase consumption beyond its production possibilities frontier. Trade can allow each country to shift its production possibilities frontier outward to higher levels of production. Trade can allow each country to become less vulnerable to the actions of the other country. All of these answers are correct.Why is comparative advantage important in determining trade instead of absolute advantage?What is the doctrine of comparative advantage? Provide an example of a particular country’s comparative advantage.
- Suppose the figure shown represents the production possibilities frontier for Country A. Country B offers to trade four trucks for every airplane. Assuming Country A specializes in airplane production, which of the following combinations of goods could Country A consume?Assume Indonesia and China are trading partners. Indonesia initially exports palm oil to and imports lubricants from China. Using the standard trade model, explain how an increase in the relative price of palm oil, in relation to lubricant prices, would affect production and consumption of palm oil for Indonesia (assuming that the taste for both goods is the same in both countries). If the income effect of price change of palm oil is greater than the substitution effect, what would happen to palm oil consumption in Indonesia?If two parties trade based on comparative advantage and both gain, in what range must the price of the trade lie? Give an example
- TRUE OR FALSE One implication of Walras’ Law for a two-commodity exchange economy is that if one market is in equilibrium then the other market must also be in equilibrium.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 Freedonia and Sylvania. Both countries produce lemons and tee, each initially (e, before specialization and trade) producing 24 million pounds of lemons and 12 million pounds of tea, as indicated by the grey stars marked with the letter A. * 56 46 40 37 56 24 16 4 F PPF Freedonia has a comparative advantage in the production of production of Y while Sylvania has a comparative advantage in the Suppose that Freedonia and Sylvania specialize in the production of the goods in which each has a comparative advantage. After specialization, the two countries can produce a total of millen pounds of tea and million pounds of lemons. $ Suppose that Freedonia and…The following graph shows a fictional world economy that consists of only two countries, Greenberg and Baxton. Both countries produce airplanes under increasing-cost conditions. Note that the left-hand part of the diagram is a mirror image of a standard supply-demand diagram, and therefore the supply and demand curves slope in directions opposite their usual directions. Greenberg Baxton 30 27 24 +18 + + 15 12 In the absence of trade (that is, autarky), the equilibrium price in Greenberg is $ and the equilibrium price in Baxton is |. (Hint: Enter all monetary values in full. For example, $7,000 rather than $7.) In the absence of trade, which of the following statements is correct? O Greenberg has the comparative advantage in production of airplanes. O Greenberg and Baxton are equally good at producing airplanes. O Baxton has the comparative advantage in production of airplanes. Now suppose both countries open up to international trade with each other. For each country, use the previous…
