Question

3.    Table 3 shows number of goods that can be produced with one year of labor in China and in Russia

Table 3	Submarines	Battleships
China	15	12
Russia	4	8

a.    Who has the absolute advantage in Submarines and Battleships?

                                                Submarines___________________         Battleships__________________

b.   Find the relative cost or opportunity cost of producing Submarines and Battleships in each country.

        China                             Submarines___________________         Battleships__________________                            

        Russia                           Submarines___________________         Battleships__________________                            

c.     Identify who has the comparative advantage.             Submarines_____________    Battleships_____________

d. What are the limits for the price of Battleships, P_B, in terms of Submarines (#S/B) in which trade will be mutually advantageous?

e.    If China and Russia each have 300 years of labor available, what is the maximum number of Submarines and Battleships each can produce?

China     Submarines_________ Battleships________             Russia   Submarines_________ Battleships________               

f.     Draw the production possibilities curves for China and Russia on the graphs below.

g.    Label the point 2400 Battleships and 1500 Submarines on the China graph and the point 600 Battleships and 900 Submarines on the Russia graph with an “A” for autarky.

h.    If both countries specialize in what they have a comparative advantage, how many will each produce? Label the point “B” on each country’s graph.

                                China__________________                        Russia___________________

i.      If the international terms of trade are 1 S/B draw and label this consumption possibilities curve for each country. Russia exports 1200 Battleships; find the trade consumption point for each country and label them “C”. Show the trade triangles.

       

j.     How can we tell that both countries are better off with trade?

Answer 1