Reference no: EM133084385

No google answers, please.  PROBLEM 6: STANDARD TRADE MODEL

1. Assume that Norway and Sweden trade with each other, with Norway exporting fish to Sweden, and Sweden exporting Volvos (automobiles) to Norway. Illustrate the gains from trade between the two countries using the standard trade model, assuming first that tastes for the goods are the same in both countries, but that the production possibility frontiers differ: Norway has a long coast that borders on the north Atlantic, making it relatively more productive in fishing. Sweden has a greater endowment of capital, making it relatively more productive in Automobiles.  
2. The Internet has allowed for increased trade in services such as programming and technical support, a development that has lowered the prices of such services relative to those of manufactured goods. India in particular has been recently viewed as an "exporter" of technology-based services, an area in which the United States had been a major exporter. Using manufacturing and services as tradable goods, draw a standard trade model for the U.S. and Indian economies that shows how relative price declines in exportable services that lead to the "outsourcing" of services can reduce welfare in the United States and increase welfare in India. 
3. From an economic point of view, India and China are somewhat similar: Both are huge, low- wage countries, probably with similar patterns of comparative advantage, which until recently were relatively closed to international trade. China was the first to open up. Now that India is also opening up to world trade, how would you expect this to affect the welfare of China? Of the United States? (Hint: Think of adding a new economy identical to that of China to the world economy.)