Question

Question 01.

Suppose that both the U.S. and Japan can produce computers and bushels of wheat using only labor (i.e., two countries, two goods, one factor Ricardian model). One U.S. worker can produce 3 computers or 10 bushels of wheat. One Japanese worker can produce 2 computers or 5 bushels of wheat. Given that the U.S. has 100 workers and Japan has 180 workers, answer each of the following parts. Show your work for credit.

A. Which country has the absolute advantage in the production of wheat?

B. Which country has the absolute advantage in the production of computers?

C. Which country has the Ricardian comparative advantage in the production of wheat?

D. Which country has the Ricardian comparative advantage in the production of computers?

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E. Draw and label the production possibilities frontier for the U.S. (wheat on the x-axis and computers on the y-axis).

F. Draw and label the production possibilities frontier for Japan (wheat on the x-axis and computers on the y-axis).

G. What does the slope of the production possibility frontier represent?

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8. Suppose that in autarky the U.S. employs 50 workers in the production of wheat and 50 workers in the production of computers. Find the quantity of productionand consumption for bushels of wheat and computers.

9. Suppose that in autarky Japan employs 90 workers in the production of wheat and 90 workers in the production of computers. Find the quantity of productionand consumption for bushels of wheat and computers.

10. In autarky, find the relative price of computers in the U.S. (i.e., (?#$/?#$))."&

11. In autarky, find the relative price of computers in Japan (i.e., (?'/?' )."&

12. If the U.S. and Japan open to free trade with each other, which country will fully specialize in computers and which country will fully specialize in wheat? Explain.

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13. For the U.S. and Japan to trade with each other, what range of values must the world trade price (?&/?") fall between? Explain.

14. Suppose that the world trade price of ? /? equals 1/3, where the U.S exports&"

15. 480 units of the good it specializes in and imports 160 units of the other from Japan. Draw the U.S.’s original PPF and the world price line. Show the U.S.’s net gains or losses in consumption under free trade.

O. Suppose that the world trade price of ? /? equals 1/3, where the Japan exports&"

160 units of the good it specializes in and imports 480 units of the other from the U.S. Draw Japan’s original PPF and the world price line. Show Japan’s net gainsor losses in consumption under free trade.

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P. Suppose that the world trade price of ? /? equals 1/3, find the real wage for

the U.S. worker.

Q. Suppose that the world trade price of ? /? equals 1/3, find the real wage for a

Japanese worker.

Answer 1

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