Question

Suppose each worker in the home country can produce 2 cars or 10 TVs, and each worker in the foreign country can produce 10 cars or 2 TVs. Assume that the total number of workers in both countries is 100.

**Suppose the world price of car relative to TV with free
trade is 2.**

1. Which good will each country produce, export and import? Explain your reasoning.

2. Calculate the quantities of output of cars and TVs in the world market

3. Suppose consumption of cars in the home country with free trade is 25 cars. Calculate the quantity of cars that are traded between the two countries.

4. Using the information in Parts (a)-(c) to calculate the quantity of TVs that are traded between the two countries

Answer #1

Home:

Total cars produced = Number of workers*Per worker production =
100*2 = 200

Total TVs produced = Number of workers*Per worker production =
100*10 = 1000

Foreign:

Total cars produced = Number of workers*Per worker production =
100*10 = 1000

Total TVs produced = Number of workers*Per worker production =
100*2 = 200

1. Opportunity cost of 1 car in home = Total TVs given up/Total
cars produced = 1000/200 = 5 TVs

Opportunity cost of 1 car in foreign = Total TVs given up/Total
cars produced = 200/1000 = 0.2 TV

So, Foreign has a comparative advantage in cars because of lower
opportunity cost. Thus, Foreign will export cars and import
TVs.

Opportunity cost of 1 TV in home = Total cars given up/Total TVs
produced = 200/1000 = 0.2 car

Opportunity cost of 1 TV in foreign = Total cars given up/Total TVs
produced = 1000/200 = 5 cars

So, Home has a comparative advantage in TV because of lower
opportunity cost. Thus, Home will export TV and import cars.

2. Total Cars = Production by Foreign = 1000

Total TVs = Production by Home = 1000

3. Quantity of cars traded = Total cars produced - Consumption of cars in home country = 1000 - 25 = 975 cars

4. The world price of car relative to TV with free trade is 2.
So, if 25 cars are traded then their price is 25*2 = 50 TVs

Thus, 50 TVs are traded.

3. Assume that two countries, Home and Foreign, produce two
goods: TVs and cars. Use the information below to answer the
following questions: In the No-Trade equilibrium: Home Foreign TV
sector Car sector TV sector Car sector Wage = 12 Wage = ? Wage* = ?
Wage* = 6 MPL = 4 MPL = ? MPL* = ? MPL* = 1 Price = ? Price = 4 P*
= 3 P* = ? (Hint: remember the link between price ratios...

The following are the equations of demand and supply of
rice in Home Country and Foreign Country. P in the equations is the
price of rice in the same currency.
Home Country’s demand for rice is QDH = 2,400 –
30P
Home Country’s supply for rice is QSH = 50P
Foreign Country’s demand for rice is QDF = 4,800 –
40P
Foreign Country’s supply for rice is QSF =
80P
Calculate i) the equilibrium price of rice in Home
Country...

Suppose that Japan can produce 5 cars in 8 hours and 15 HD TVs
in 10 hours. The US can produce 5 cars in 6 hours and 15 TVs in 5
hours. Explain which country has a comparative advantage in
producing cars and which country has a comparative advantage in
producing TVs. In your answer, be sure to be very specific as to
how you identified the comparative advantage in each country and
define how one goes about identifying comparative...

Canadian and Japanese workers can each produce 4 cars per year.
A Canadian worker can produce 10 tonnes of grain per year, whereas
a Japanese worker can produce 5 tonnes of grain per year. To keep
things simple, assume that each country has 100 million workers.
Graph the production possibilities frontier of the Canadian and
Japanese economies.
For Canada, what is the opportunity cost of a car? Of grain?
For Japan, what is the opportunity cost of a car? Of...

With each unit of resources, Country A can produce 4 cars or 600
microchips
while Country B can produce 8 cars or 800 microchips.
Suppose these two countries engage in international trade.
Currently, 1 car can be exchanged for 120 microchips in the
international market.
Which country, A or B, should sell cars in international trade?
How much would each country gain respectively from trading one car
in international trade. Show your calculation.

The world consists of two countries: Home and Foreign. We
observe supply and demand curves in both countries:
D= 50?25P and S=25P in Home
D* = 200?25P* and S* = 25P?50 in Foreign
a) Derive MD (import demand) and XS (export supply) curves.
b) Graph MD and XS. Find the world equilibrium (price and
quantity) under free trade.
c) Suppose that importer imposes a tariff t = 2. Find the new
prices in Home and Foreign. How will the volume...

England and Scotland both produce scones and sweaters. Suppose
that an English worker can produce at most 40 scones per day or at
most 2 sweaters per day. Suppose that a Scottish worker can produce
at most 20 scones per day or at most 4 sweaters per day.
a. Find the opportunity cost of producing one scone in terms of
sweaters for each country. In other words, how many sweaters each
country gives up to produce one scone?
b. Without...

Canadian and Japanese workers can
each produce 4 cars per year. A Canadian worker can produce 10
tonnes of grain per year, whereas a Japanese worker can produce 5
tonnes of grain per year. To keep things simple, assume that each
country has 100 million workers.
a. Starting from a position
without trade, give a numerical example in which trade makes each
country better off.
answer the part a

Consider the following model of trade between Home and Foreign.
Assume throughout that those two countries are the only two
countries in the world, at least for purposes of trade. There are
two goods: Corn and Radio. Consumers always spend one-third of
their income on Corn and the remainder on Radios. The only factor
of production is labour. Each home country worker can produce 2
units of Corn or 3 units of Radios per unit of time, while each
foreign...

2. Given the supply and demand equations for two countries, home
and foreign, below,
Home Foreign
Qd = 100 – 3P Qd = 80 – 4P
Qs = 10 + 4P Qs = 30 + 2P
a. List the key assumptions of the tariff model.
b. Find equilibrium price and quantity in each country before
trade. Show your work.
c. Which country will be the exporter? __________ Which country
will be the importer? _____________
d. What is the equilibrium world...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 5 minutes ago

asked 19 minutes ago

asked 23 minutes ago

asked 29 minutes ago

asked 42 minutes ago

asked 45 minutes ago

asked 47 minutes ago

asked 51 minutes ago

asked 57 minutes ago

asked 59 minutes ago

asked 1 hour ago

asked 2 hours ago