Microeconomics
21st Edition
ISBN: 9781259915727
Author: Campbell R. McConnell, Stanley L. Brue, Sean Masaki Flynn Dr.
Publisher: McGraw-Hill Education
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Question
Chapter 26, Problem 4DQ
To determine
The specialization by small and big countries.
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Suppose Big Country can produce 80 units of X by using all its resources to produce X or 60 units of Y by devoting all its resources to Y. Comparable figures for Small Nation are 60 units of X and 60 units of Y. Assuming constant costs, in which product should each nation specialize? Explain why. What are the limits of the terms of trade between these two countries? How would rising costs (rather than constant costs) affect the extent of specialization and trade between these two countries?
3. Gains from trade
Consider two neighboring island countries called Bellissima and Felicidad. They each have 4 million labor hours available per month that they can use
to produce rye, jeans, or a combination of both. The following table shows the amount of rye or jeans that can be produced using 1 hour of labor.
Rye
Jeans
Country
(Bushels per hour of labor)
(Pairs per hour of labor)
Bellissima
6.
12
Felicidad
4
16
Initially, suppose Bellissima uses 1 million hours of labor per month to produce rye and 3 million hours per month to produce jeans, while Felicidad
uses 3 million hours of labor per month to produce rye and 1 million hours per month to produce jeans. Consequently, Bellissima produces 6 million
bushels of
rye
and 36 million pairs of jeans, and Felicidad produces 12 million bushels of rye and 16 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 rye…
Suppose there exist two imaginary countries, Denali and Sequoia. Their labor forces are each capable of supplying four million hours per day 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
Shorts
Country (Pounds per hour of labor) (Pairs per hour of labor)
Denali
16
Sequoia
20
Suppose that initially Denall uses 1 million hours of labor per day to produce almonds and 3 million hours per day to produce shorts, while Sequoia
uses 3 million hours of labor per day to produce almonds and 1 million hours per day to produce shorts. As a result, Denali produces 8 million pounds
of almonds and 48 million pairs of shorts, and Sequoia produces 15 milion pounds of almonds and 20 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…
Chapter 26 Solutions
Microeconomics
Ch. 26.2 - Prob. 1QQCh. 26.2 - Prob. 2QQCh. 26.2 - Prob. 3QQCh. 26.2 - Prob. 4QQCh. 26 - Prob. 1DQCh. 26 - Prob. 2DQCh. 26 - Prob. 3DQCh. 26 - Prob. 4DQCh. 26 - Prob. 5DQCh. 26 - Prob. 6DQ
Ch. 26 - Prob. 7DQCh. 26 - Prob. 8DQCh. 26 - Prob. 9DQCh. 26 - Prob. 10DQCh. 26 - Prob. 11DQCh. 26 - Prob. 12DQCh. 26 - Prob. 13DQCh. 26 - Prob. 14DQCh. 26 - Prob. 1RQCh. 26 - Prob. 2RQCh. 26 - Prob. 3RQCh. 26 - Prob. 4RQCh. 26 - Prob. 5RQCh. 26 - Prob. 6RQCh. 26 - Prob. 7RQCh. 26 - Prob. 8RQCh. 26 - Prob. 9RQCh. 26 - Prob. 10RQCh. 26 - Prob. 11RQCh. 26 - Prob. 12RQCh. 26 - Prob. 13RQCh. 26 - Prob. 1PCh. 26 - Prob. 2PCh. 26 - Prob. 3PCh. 26 - Prob. 4P
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- Assume that Germany has 1200 units of labor available and it can produce two goods: apples and bananas. The unit labor requirement in apple production is 3, while in banana production it is 2. France has a labor force of 800. France’s unit labor requirement in apple production is 5, while in banana production it is 1. Suppose that Germany does not specialize in the production of the commodity in which it has a comparative advantage but it opens up for trade at the autarky production level. Compare the welfare of the country with the case when country specializes.arrow_forwardSuppose that a worker in Freedonia can produce either 6 units of corn or 4 units of wheat per year, and a worker in Sylvania can produce either 4 units of corn or 6 units of wheat per year. Each nation has 10 workers. For many years the two countries traded, each completely specializing in producing the grain for which it has a comparative advantage. Now, however, war has broken out between them and all trade has stopped. Without trade, Freedonia produces and consumes 30 units of corn and 20 units of wheat per year. Sylvania produces and consumes 20 units of corn and 30 units of wheat. By how much has the combined yearly output of the two countries declined?arrow_forwardY 100 Country A X Y 40 Country B 40 X 20 a) How much of Good Y will Country B produce if they specialize in their comparative advantage? 40 b) By themselves, if Country B produces 18 units of Y, what is the maximum amount they could produce of Good X? 18 c) If the terms of trade proposed are 5 X for 10Y, how much will Country B be able to consume of Good Y after trade if they specialize in their comparative advantage before trading? 40arrow_forward
- Given the information as follows: Consider the following model of trade between Vietnam and France. Assume throughout that those two countries are the only two countries in the world, at least for purposes of trade. There are two goods: Rice and Beef. Consumers always spend 1/4 of their income on rice and the remainder on beef. The only factor of production is labor. Each Vietnamese worker can produce 2 unit of Rice or 1 unit of beef per unit of time, while each French worker can produce 1 units of rice or 3 units of beef per unit of time. There are 100 million workers in Vietnam and 70 million in France. a. Determine the product brings higher wealth to each country. b. Determine the pattern of trade for both countries using Ricardian model. Draw the world relative supply curve. c. What is the benefit of each country when joining international trade following Ricardian model? Draw the graph to clarify your idea.arrow_forwardSuppose there are two countries Peru and Japan that produce Food and Fuel. Peru can produce 7,523 units of Food or 17,853 units of Fuel using a labour force of 8000. Japan can produce 5,733 units of Food or 24,156 units of Fuel using a labour force of 5000. (g) If the terms of trade is 2 to 1 in favour of the country with the comparative advantage in food. Determine the combination of the two goods that each country will consume after trade if the country with the comparative advantage in fuel imports 4000 units of food. Label this point B and B* respectively. h) Who gains from trade? Who loses? What is the impact if any on the world? (i) What should the terms of trade be to make trade beneficial for BOTH Japan and Peru? Explain.arrow_forwardQ4. Assume that two countries (Home and Foreign) each produce two goods (corn and wheat) under constant cost production. Home produces 0.5 ton of corn or 1 ton of wheat with a day of labor. Without trade (in autarky), Home's daily production is 20 tons of wheat and 10 tons of corn. Now suppose that Home has the opportunity to trade with Foreign at an international price of 1 ton of wheat per ton of corn. In which product will Home find its comparative advantage? wheat corn Home will find its competitive advantage in neither corn nor wheat Home will find its competitive advantage in both corn and wheatarrow_forward
- Japan has an absolute advantage in both apples and computers compared to Korea. Producing a ton of apples uses 20 labour hours in Japan compared to 25 labour hours in Korea. Producing one computer requires 80 labour hours in Japan and 125 labour hours in Korea. Suppose that Japan and Korea have 40,000 and 30,000 hours of labour available to produce the two goods per month, respectively. Why does Japan specialise in computer production and Korea specialise in apple production?arrow_forwardConsider a two country, two goods, one factor (labor) model of international trade. Suppose home country require 1 units of labor to produce a unit of cloth and 1 unit of labor to produce a unit of wine (regardless of output levels). Foreign country requires 2 unit of labor to produce 1 unit of cloth and 1.5 units of labor to produce 1 unit of wine (regardless of output levels). (a) Which country has the comparative advantage in producing wine? Justify your answer. (b) Which country has the absolute advantage in producing wine? (c) Which country will have higher autarky price of wine in terms of cloth?arrow_forwardThe country of Moreland is currently operating under autarky. It produces two goods, textiles and automobiles, using capital and labor. At current factor prices, textile production uses equal amounts of labor and capital, while automobile production uses one unit of labor for every two units of capital. Moreland is considering opening to trade with five different countries. Note that Moreland's capital or labor abundance, and thus its comparative advantage, may vary relative to the different countries) If Moreland opens to trade with Country A, the relative price of textiles will increase in Country а. A. In which good does Moreland have a comparative advantage? Explain. b. If Moreland opens to trade with Country B, the relative demand for labor falls in Moreland. Is Moreland land or labor abundant relative to Country B? Explain. If Moreland opens to trade with Country C, rental-wage ratio falls in Country C. In which product does Moreland have a lower relative price under autarky,…arrow_forward
- Given: (1) two nations (1 and 2) which have the same technology but different factor endowments and tastes, (2) two commodities (X and Y) produced under increasing costs conditions, and (3) no transportation costs, tariffs, or other obstructions to trade. Prove geometrically that mutually advantageous trade between the two nations is possible. Note: Your answer should show the autarky (no-trade) and free-trade points of production and consumption for each nation, the gains from trade of each nation, and express the equilibrium condition that should prevail when trade stops expanding.)arrow_forwardConsider a two country, two goods, one factor (labor) model of international trade. Suppose home country require 1 units of labor to produce a unit of cloth and 1 unit of labor to produce a unit of wine (regardless of output levels). Foreign country requires 2 unit of labor to produce 1 unit of cloth and 1.5 units of labor to produce 1 unit of wine (regardless of output levels). (a) Which country has the comparative advantage in producing wine? Justify your answer. (b) Which country has the absolute advantage in producing wine? (c) Which country will have higher autarky price of wine in terms of cloth? (d) Suppose after trade, the international relative price settles at a level strictly between the autarky relative prices of the two countries. At the trade equilibrium, show which country will produce wine and which country will produce cloth.arrow_forward
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