Reference no: EM133083911
Consider a world that consists of two countries, Domestic and Foreign, in a Ricardian model setting. Suppose Domestic has L¯D = 100 workers and Foreign has L¯ F = 20 workers. The output that one worker can produce in each country in terms of each good is given in the following table:
|
|
Cloth
|
Widgets
|
|
Domestic
|
10
|
20
|
|
Foreign
|
30
|
60
|
1) What is the opportunity cost of cloth in Foreign in terms of widgets?
2) Which of the following statements is true?
A Home has a comparative advantage in widgets
B Foreign has a comparative advantage in widgets
C Home has a comparative advantage in widgets and cloth
D Neither country has a comparative advantage in widget
3) What is the total amount of cloth that will be produced in the free-trade equilibrium?
4) What is the total number of widgets that will be produced in the free-trade equilibrium?
5)All else equal, if Domestic workers become twice as productive, Domestic should:
A Sell cloth to Foreign and buy widgets from Foreign
B Sell widgets to Foreign and buy cloth from Foreign
C Sell cloth and widgets to Foreign
D Buy cloth and widgets from Foreign
E Stop trading with Foreign
6)All else equal, how would Domestic's real wages change if L¯D = 200 due to immigration?
A Real wages would unambiguously rise
B Real wages would unambiguously fall
C Real wages would not change
D The effect on real wages would be ambiguous
For 1.7 and 1.8, suppose the world price is PC/ PW = 1
1.7 What is Domestic's real wage in the free-trade equilibrium in terms of the good they export?
1.8 What is Foreign's real wage in the free-trade equilibrium in terms of the good they import