International Economics: Trade

INTERNATIONAL ECONOMICS: TRADE

INSTRUCTIONS

Assignments must be turned in at the beginning of the assigned class period. Late assignments will not be accepted. For each problem set, part of your grade will be based on your answers to all the questions listed below and part of your grade will be based on questions you will answer in class on the day the assignment is due. The assignment should be typed and if handwritten the answers should be neatly written and clearly legible. Answers that are illegible will not be graded. The assignments have to be stapled before coming to class.

You are encouraged to discuss the assignment with other students but once you are ready to write your answers please do the work on your own. Academic dishonesty, particularly plagiarism and cheating, is a serious offense. You cannot hand in an assignment that is identical to that handed in by another student. Please be advised that if the assignment contains verbatim language from another source it will be considered an act of academic dishonesty and I will follow a policy of zero tolerance. At the very minimum, academic dishonesty will result in a failing grade for this course, but may also result in expulsion from the University.

QUESTIONS

1. Answer questions a through g based on the following information about production relationships.

PRIVATE Country	Labor per book	Labor per candle
Ricardia	aRLB = 100	aRLC = 20
Smithland	aSLB = 5	aSLC = 40

a. Ricardia has the absolute advantage in books / candles .

b. Smithland has the absolute advantage in books / candles .

c. If Ricardia had 400 units of labor and if under autarky it allocated 200 units of labor to candle production and 200 units of labor to book production then it would produce:

_______ number of books and ________ number of candles.

d. If Smithland had 400 units of labor and under autarky it allocated 200 units of labor to candle production and 200 units of labor to book production then it would produce:

_______ number of books and ________ number of candles.

e. Suppose that each country had 400 units of labor and under trade both countries completely specialize in the good in which each of them has an absolute advantage then:

Ricardia would produce _______ number of ____________ and

Smithland would produce _______ number of ____________.

f. If they trade exactly one book for one candle then after trade (based on part e):

Ricardia would have _______ number of books and _______ number of candles and

Smithland would have _______ number of books and _______ number of candles.

g. As compared to autarky (parts c and d) show how each country gains from trade (part f).

2. Answer questions a through h based on the following information about production relationships.

PRIVATE Country	Labor per book	Labor per candle
Ricardia	aRLB = 20	aRLC = 2
Smithland	aSLB = 25	aSLC = 5

a. Ricardia has the comparative advantage in book / candle .

b. Smithland has the comparative advantage in book / candle .

c. Assuming that each country has 200 units of labor, graph the production possibility frontiers for Ricardia and Smithland:

Ricardia Smithland

books books

Candles Candles

d. If the terms of trade were such that 1 book exchanged for 6 candles then graph the consumption possibilities for each country and show whether the country experiences a gain, loss or no change from trade:

Ricardia Smithland

books books

candles candles

e. If the terms of trade were such that 1 book exchanged for 1 candle then graph the consumption possibilities for each country and show whether the country experiences a gain, loss or no change from trade:

Ricardia Smithland

books books

candles candles

f. If the terms of trade were such that 1 book exchanged for 10 candles then graph the consumption possibilities for each country and show whether the country experiences a gain, loss or no change from trade:

Ricardia Smithland

books books

candles candles