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Explain the implications of convergence in relative prices when two countries ( say Home and Foreign) trade.
Why do we use general equilibrium analysis rather than partial equilibrium analysis to study
How can we explain the lower flat section and the upper flat section of the Relative Supply (RS) curve?
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- What is the relationship between production costs and comparative advantage? Group of answer choices Comparative advantage considers, “How much am I giving up to produce this good in this country?” Comparative advantage identifies the good for which the producer’s absolute advantage is relatively smaller. Comparative advantage identifies where the producer’s absolute productivity disadvantage is relatively larger. Comparative advantage happens when the production costs for both trading partners are the same.7. Transportation costs and comparative advantage The following graph shows a fictional world economy that consists of only two countries, Greenberg and Baxton. Both countries produce cars 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. PRICE OF CARS (Thousands of dollars) + Greenberg + + + 10 9 8 7 +6 5 SG 4 3 2 1 10 9 8 7 6 5 4 3 2 1 Baxton CARS + + SB DB 1 2 3 4 5 6 7 8 9 10 ?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
- Suppose that research finds a link between high fructose corn syrup (HFCS) and obesity, which then leads American consumers to switch from HFCS products to pure cane sugar products. The graphs show the markets for cane sugar in Haiti and the United States before the studies were divulged. Shift the curves in the graphs, including the horizontal world price curve, to describe the new trade equilibrium that results after the switch in preferences of American households, and then answer the follow-up question. Assume that the United States and Haiti are the only non-HFCS sugar trading parties in the world and that there are no quotas, subsidies, or tariffs distorting these markets. Price ($) Incorrect 10 9 8 7 3 2 1 World price United States Domestic demand Domestic supply 0 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Quantity (thousands of pounds) According to your graphs, at the new equilibrium ✓cane sugar producers in Haiti benefit. ✔all Haitian cane sugar consumers benefit.…Suppose that research finds a link between high fructose corn syrup (HFCS) and obesity, which then leads American consumers to switch from HFCS products to pure cane sugar products. The graphs show the markets for cane sugar in Haiti and the United States before the studies were divulged. Shift the curves in the graphs, including the horizontal world price curve, to describe the new trade equilibrium that results after the switch in preferences of American households, and then answer the follow‑up question. Assume that the United States and Haiti are the only non‑HFCS sugar trading parties in the world and that there are no quotas, subsidies, or tariffs distorting these markets. According to your graphs, at the new equilibrium a. all Haitian cane sugar consumers benefit. b. cane sugar producers in Haiti benefit. d. cane sugar producers in the United States are worse off.As the manager at a local florist, you supervise two employees, Anita and Jerome. There are two tasks that need to be completed: floral arrangements and flower delivery. It takes Anita 30 minutes to finish one floral arrangement and it takes her 40 minutes to make one delivery. It takes Jerome 10 minutes to finish one floral arrangement and it takes him 30 minutes to make one delivery. a. Who has a comparative advantage in floral arrangements? What about deliveries? b. Suppose, initially, Jerome and Anita each spent 4 hours each day doing floral arrangements and 2 hours each day doing deliveries. If you changed their tasks so that each individual did nothing but the task for which they had a comparative advantage, how many more floral arrangements would your store make, and how many more deliveries?
- Suppose that research finds a link between high fructose corn syrup (HFCS) and obesity, which then leads American consumers to switch from HCFS products to pure cane sugar products. The graphs below show the markets for cane sugar in Haiti and the U.S. before the studies were divulged. Shift the curves in the graphs, including the horizontal World Price curve, to describe the new trade equilibrium that results after the switch in preferences of American households, and then answer the follow-up question. Assume that the U.S. and Haiti are the only non-HFCS sugar trading parties in the world and that there are no quotas, subsidies, or tariffs distorting these markets. United States Haiti 8 1 Domestic Supply World Price DIE Domestic Demand 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Quantity (thousands of pounds) 8 According to your answer above, at the new equilibrium: Cane sugar producers in Haiti benefited. Cane sugar producers in the U.S. are worse off. All Haitian cane…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…The production possibilities frontier (PPF) for Honduras and Brazil, representing hypothetical levels of production, are shown in the graphs. Assume that, without trade, each country is initially producing and consuming at point A on its PPF curve. Suppose these countries decide to trade. Each country will specialize in the production of the good for which it has a comparative advantage. Assume the countries agree to trade. The terms of trade are 6000 tons of bananas for 4000 tons of steel. Move the post‑trade consumption point for each country to reflect their post‑trade consumption. Which good will each country produce? Honduras will produce bananas and Brazil will produce steel. Brazil will produce both bananas and steel. Honduras will produce both bananas and steel. Honduras will produce steel and Brazil will produce bananas.
- What concept describes the situation where the increase in the production of one good leads to a decrease in the potential production of another due to limited resources? A) Comparative Advantage B) Opportunity Cost C) Economies of Scale D) Market EquilibriumThe accompanying Production Possibilities Frontiers (PPF) represent hypothetical levels of production for Honduras and Brazil. Assume the two countries are initially producing and consuming in autarky at point A on each of their PPFs. Suppose these countries decide to trade. Each country will specialize in the production of the good for which it has a comparative advantage. a. What will each country produce? a. Honduras will produce both goods. b. Brazil will produce both goods. c. Honduras will produce bananas and Brazil steel. d. Honduras will produce steel and Brazil bananas. b. Suppose each country specializes in the production of the good for which it has a comparative advantage, and they trade at a price of of 4,000 tons of steel for 6,000 tons of bananas. Place the points labeled "Post Trade Consumption" to show the amounts of bananas and steel each country will have to consume after they trade. (look at image)In this problem, we want to think about the difficulties that governments face in agreeing to significantly reduce CO2 emissions in order to control climate change. In the context of climate change, what phenomenon does China’s utility function capture? What does this exercise tell us about the limitations of the first welfare theorem? What do you think is an important aspect of trade in reality which is not captured by this model?