Reference no: EM132790218

Assume there are three countries in the world {Canada, Japan, and the United States}, and they can produce two goods {wheat, cars}. There is 100 units of labor available in each country, and the unit labor requirements for production of these goods and countries are given in the table below

Canada:
Wheat= 1
Cars= 2
Endowment= 100
U.S:
Wheat= 1
Cars= 1
Endowment= 100
Japan:
Wheat= 2
Cars= 1
Endowment= 100

A) Canada has a comparative advantage in what good? Japan has a comparative advantage in what good? What does the U.S have a comparative advantage in? (be careful here).

B) Graph the world production possibility frontier. Put cars on the vertical axis.

C) Graph the world relative supply curve of cars to wheat (on the horizontal axis) against the relative price of cars to wheat on the vertical axis. Label all the kink points carefully and explicitly. Label both axis carefully.

D) Suppose tastes are identical across countries and the relative demand for cars to wheat depends only on relative prices. Illustrate by use of (several) relative demand curves the set of possible outcomes for the trading equilibrium among Canada, Japan, and the United States.

E) Explain the production in each country, their trade patterns, and the gains from trade for each country in each of the potential equilibria you found in d).

F) If you knew that Japanese real income per person in trade was equal to that of citizens of the U.S, but twice as high as Canadian real income which trading equilibrium are we in?