Reference no: EM132365147

Question 1

Suppose Mike and Johnson produce two products-hamburgers and T-shirts. Mike produces 10 hamburgers or 3 T-shirts a day and Johnson produces 7 hamburgers or 4 T-shirts. Assuming they can devote time in making either hamburgers or T-shirts

a. Draw the production possibility curves

b. Who enjoys the absolute advantage of producing both?

c. Who has higher opportunity cost of making T-shirts?

d. Who has a comparative advantage in producing hamburgers?

Question 2

Suppose two economies H and F produce two goods, X and Y, with only one input: labour. Production technology implies that unit labour requirements are given in the following table:

amount of labour per unit of output	X	Y
H	6	12
F	4	2

Suppose that H has 2400 units of labour and F has 1800 units of labour.

(a) Derive the Production Possibilities Frontier (PPF) for H and F. What is the autarky equilibrium price ratio in each country?

(b) What is the range of feasible equilibrium world price ratios?

(c) Suppose these countries trade with each other at some feasible world price ratio. Which country exports good X? Why?

(d) Does trade equalize the real return to labour in Home and Foreign? Why?

Question 3

Consider two countries (Home and Foreign) that produce goods 1 (with labour and capital) and 2 (with labour and land) according to the production functions listed below (Table 1 and Table 2). Initially, both countries have the same supply of labour (100 units each), capital, and land. The capital stock in Home then grows. This change shifts out both the production curve for good 1 as a function of labour employed (Table 1) and the associated marginal product of labour curve (Table 2). Nothing happens to the production and marginal curves for good 2.

a. Show how the increase in the supply of capital for Home affects its production possibility frontier.

b. Draw the relative supply curve for both the Home and the Foreign economy.

c. If those two economies open up to trade, what will be the pattern of trade (i.e., which country exports which good)?

d. Describe how opening up to trade affects all free factors (labour, capital, land) in both countries.

Table 1
Labour input to good 1	Output of good 1	Labour input to Good 2	Output of good 2
0	0	0	0
10	25.1	10	39.8
20	38.1	20	52.5
30	48.6	30	61.8
40	57.7	40	69.3
50	66	50	75.8
60	73.6	60	81.5
70	87	70	86.7
80	87.4	80	91.4
90	93.9	90	95.9
100	100	100	100

Table 2
Workers Employed	MPL in sector 1	MPL in sector 2
10	1.51	1.59
20	1.14	1.05
30	1	0.82
40	0.87	0.69
50	0.78	.6
60	0.74	0.54
70	0.69	0.5
80	0.66	0.46
90	0.63	0.43
100	0.6	0.4

Question 4

Answer the following 5 Multiple Choice Questions

1. A country does NOT engage in trade can benefit from trade only if

A) It employs a unique technology
B) Its wage rate is below the world average
C) It has an absolute advantage in at least one good
D) Pre-trade and free-trade relative prices are identical
E) Pre-trade and free-trade relative prices are not identical

2. The effect of trade on specialised employees of exporting industries will be ____ jobs and ____ pay because they are relatively____.

A) fewer, lower, mobile
B) more, higher, mobile
C) more, lower, immobile
D) fewer, lower, immobile
E) more, higher, immobile

3. The Ricardian model of international trade demonstrates that trade can be mutually beneficial. Why, then, do governments restrict imports of some goods?

A) Imports are only restricted when foreign made goods do not meet domestic standard of quality
B) Import restrictions are the results of trade wars between hostile countries
C) Trade can have substantial effects on a country's distribution of income
D) The Ricardian model is often incorrect in its prediction that trade can be mutually beneficial
E) Restriction on Imports are intended to benefit domestic consumers.

4. In the specific factor model, a country's production function is ____ because of ____.

A) a curved line, constant marginal returns
B) a curved line, a limited supply of labour
C) a curved line, diminishing marginal returns
D) a straight line, constant marginal returns
E) a straight line, diminishing marginal returns

5. The effect of trade on income distribution

A) is insignificant in the short run
B) is positive for all segments of an economy
C) can be significant in the short run
D) implies that there are no real gains from trade
E) refutes the model of comparative advantage