Economics: Principles & Policy
14th Edition
ISBN: 9781337696326
Author: William J. Baumol; Alan S. Blinder; John L. Solow
Publisher: Cengage Learning
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Question
Chapter 34, Problem 1TY
a)
To determine
The autarky price of wine in terms of cloth in England.
b)
To determine
The autarky price of wine in terms of cloth in Portugal.
c)
To determine
The
d)
To determine
Determine the country which has an
e)
To determine
The specialization and export of goods after trade.
f)
To determine
The
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The following table describes the number of yards of cloth and barrels of wine that can be produced with a week’s worth of labor in England and Portugal. Assume that no other inputs are needed.
In England In Portugal
Cloth 8 yards 12 yards
Wine 2 barrels 6 barrels
If there is no trade, what is the price of wine in terms of cloth in England?
If there is no trade, what is the price of wine in terms of cloth in Portugal?
Suppose each country has 1 million weeks of labor available per year. Draw the production possibilities frontier for each country.
Which country has an absolute advantage in the production of which good(s)? Which country has a comparative advantage in the production of which good(s)?
If the countries start…
Consider two countries, Spain and Russia and two goods, wine and vodka. Labour is the only factor of production. The per unit labour requirements for wine is 2 in Spain and 5 in Russia. Meanwhile the per unit labour requirements for vodka is 2 in each of the two countries. The wages in Spain are 50 % higher than the wages in Russia.
What is the cost of producing wine in Spain relative to the cost of producing wine in Russia? What is the cost of producing vodka in Spain relative to the cost of producing vodka in Russia?
In the absence of transport costs will there be trade? If yes, then who will specializein what? Illustrate your answer numerically.
Now introduce transport costs: Exporting wine and vodka abroad increases the initial cost by 100 %. What happens to the trade between Spain and Russia? Illustrate your answer numerically.
Chapter 34
1.
The following table describes the number of yards of cloth and barrels of wine that can
be produced with a week's worth of labor in England and Portugal. Assume that no
other inputs are needed.
In England
8 yards
Cloth
In Portugal
12 yards
Wine
2 barrels
6 barrels
a. If there is no trade, what is the price of wine in terms of cloth in England?
b. If there is no trade, what is the price of wine in terms of cloth in Portugal?
c. Suppose each country has 1 million weeks of labor available per year. Draw the
production possibilities frontier for each country.
d.
Which country has an absolute advantage in the production of which good(s)? Which
country has a comparative advantage in the production of which good(s)?
e.
If the countries start trading with each other, which country will specialize and
export which good?
f. What can be said about the price at which trade will take place?
||
Chapter 34 Solutions
Economics: Principles & Policy
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