MACROECONOMICS
14th Edition
ISBN: 9781337794985
Author: Baumol
Publisher: CENGAGE L
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Question
Chapter 18, Problem 2TY
a)
To determine
To calculate: The price ratio.
b)
To determine
The commodity which will be imported by US and M.
c)
To determine
The fall of price ratio.
d)
To determine
To Explain: The possibility that benefits both United States and Mexico from the free trade.
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There are two countries Home and Foreign.
Home has 1,200 units of labor available. It can produce two goods, apples and bananas. The unit
labor requirement in apple production is 3, while in banana production it is 2.
Foreign has a labor force of 800. Foreign's unit labor requirement in apple production is 5, while in
banana production it is 1.
Suppose world relative demand takes the following form: Demand for apples/demand for bananas
= price of bananas/price of apples
a-b. On the graph to the right:
1.) Using the 3-point curved line drawing tool, draw the relative demand curve. Label the curve
RD.
2) Using the point drawing tool, indicate the equilibrium relative price of apples. Label this point
EQ.
Carefully follow the instructions above and only draw the required objects.
2
Relative price of apples Pa/Pb
0
035
0.75
05
Relative quantity of apples
RS
There are two countries Home and Foreign.
Home has 1,200 units of labor available. It can produce two goods,
apples and bananas. The unit labor requirement in apple production
is 3, while in banana production it is 2.
Foreign has a labor force of 800. Foreign's unit labor requirement in
apple production is 5, while in banana production it is 1.
Suppose world relative demand takes the following form: Demand for
apples/demand for bananas = price of bananas/price of apples.
1.) Using the 3-point curved line drawing tool, draw the relative
demand curve on the graph to the right. Label the curve RD.
Now suppose that instead of 1,200 workers, Home had 2,400. The
relative supply curve (RS) would shift to the right (as shown by RS₁).
2.) Using the point drawing tool, indicate the new equilibrium relative
price of apples. Label this point EQ.
Carefully follow the instructions above and only draw the required
objects.
What can you say about the efficiency of world production and the
division of…
Knowledge Booster
Similar questions
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- Country X has 100 units of labour and country Y has 200 units of labour. Both countries produce computers and televisions. The unit labour requirements are given in the table below: Computers Televisions Country X 50 Country Y 100 Assume that free trade exists and that the relative price is such that both countries specialize completely in the industry in which they have a comparative advantage (neither country produces both goods). The supply of computers relative to televisions will be Select one: a. 0.02 (or 1/50) O b. 0.013 (or 1/75) c. 0.01 (or 1/100) d. impossible to determine without knowing the relative price of computers in terms of televisionsarrow_forwardTwo 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 2arrow_forwardhelp mearrow_forward
- Suppose there exist two imaginary countries, Sequoia and Denall. Their labor forces are each capable of supplying four million hours per week that can be used to produce almonds, shorts, or some combination of the two. The following table shows the amount of almonds or shorts that can be produced by one hour of labor. Almonds Country (Pounds per hour of labor) Sequoia Denall Suppose that initially Denall uses 1 million hours of labor per week to produce almonds and 3 million hours per week to produce shorts, while Sequoia uses 3 million hours of labor per week to produce almonds and 1 million hours per week to produce shorts. As a result, Sequola produces 12 million pounds of almonds and 16 million pairs of shorts, and Denall produces 6 million pounds of almonds and 36 million pairs of shorts. Assume there are no other countries willing to engage in trade, so, in the absence of trade between these two countries, each country consumes the amount of almonds and shorts it produces.…arrow_forwardThere are two countries Home and Foreign. Home has 1,200 units of labor available. It can produce two goods, apples and bananas. The unit labor requirement in apple production is 3, while in banana production it is 2. Foreign has a labor force of 800, Foreign's unit labor requirement in apple production is 5, while in banana production it is 1. Suppose world relative demand takes the following form. Demand for apples/demand for bananas price of bananas/price of apples 1.) Using the 3-point curved line drawing tool, draw the relative demand curve on the graph to the night. Label the curve RD. Now suppose that instead of 1.200 workers, Home had 2,400. The relative supply curve (RS) would shift to the right (as shown by RS,) 2) Using the point drawing tool, indicate the new equilibrium relative price of apples, Label this point EQ. Carefully follow the instructions above and only draw the required objects. What can you say about the efficiency of world production and the division of the…arrow_forwardSuppose that Canada imports pearl necklaces from India. The free market price is $111.00 per necklace. If the tariff on imports in Canada is initially 26%, Canadians pay $ per necklace. One of the accomplishments of the Uruguay Round that took place between 1986 and 1993 was significant across-the-board tariff cuts for industrial countries, as well as many developing countries. Suppose that as a result of the Uruguay Round, Canada reduces its import tariffs to 13%. Assuming the price of pearl necklaces is still $111.00 per necklace, consumers now pay the price of $ Based on the calculations and the scenarios presented, the Uruguay Round most likely hurts consumers hurts consumers in India. per necklace. in Canada andarrow_forward
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