Suppose we are considering a Ricardian model setting, where countries have not yet opened up to trade. Two goods are produced exclusively by domestic labor supplies, sacks of coffee and sugar. Home and foreign maintain the following marginal productivities of labor (MPL) in producing products. The two countries labor pools L = 35 are equal, meaning no differences in labor endowment. Coffe Sugar 6 9 MPL Home 10 Foreign 12 Consider the autarky scenario where countries do not exchange goods. Complete the following questions to obtain the two countries consumption and production equilibria. Q.) Suppose Foreign prefers consuming 5 sacks of coffee for every sack of sugar consumed. Calculate the consumption bundle of Foreign and sketch it on a PPF graph.

Two planets, Endor and Kamino, both produce two goods, blasters and radio devices. The below graphs show the PPF curves of each planet before specialization. Initially, each planet produces 50,000 radio devices and 5,000 blasters. In total, 100,000 radios and 10,000 blasters are produced. Which planet has a comparative advantage in producing radios and which planet has a comparative advantage in producing blasters? If each planet was to fully specialize in producing one good, how many radios in total would be produced and how many blasters in total would be produced?       Suppose that the two planets trade 5,000 blasters for 90,000 radios. Graph and label the new points on each planet’s PPF using the graphs above. What is the outcome of specialization and trade for each planet?

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…

Gains and Losses from Trade in the Specific-Factors Model - End of Chapter Problem Home produces two goods, computers and wheat, for which capital is specific to computers, land is specific to wheat, and labor is mobile between the two industries. Home has 100 workers and 100 units of capital but only 10 units of land. a. Suppose that when Home opens up to international trade, the price of computers rises. In the accompanying diagram, shift the appropriate curve to show this change, holding the price of wheat constant. b. The increase in the price of computers causes the Wage amount of labor used in wheat production a given quantity of labor 0 W The amount of labor used in computer production the change in the wage. L --> LLL" curve to shift vertically by PMPLC P_MPL W W <-C .... while the The vertical shift of the P MPL curve at

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

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.…

Answer the next question(s) on the basis of the following information. Assume that by devoting all its resources to the production of X, nation Alpha can produce 40 units of X. By devoting all its resources to Y, Alpha can produce 60Y. Comparable figures for nation Beta are 60X and 40Y. Refer to the above information. The terms of trade will be at or within the 1X=1¹/2Y to 1X = ²/3Y range. Select one: True False

According to the Heckscher-Ohlin or Factor Proportions model, countries have comparative advantage in the good O Requires proportionately more of every factor than the goods they import. O Employs a relatively large amount of the factor that they have relatively more of than other countries. Employs a relatively large amount of their scarce factor. Uses intensively their scarce factor.