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blackspider212Lv1

28 Sep 2019

The textbook considers the extension of the Ricardian model to more than two goods - let's consider the case of more than two countries.

Consider a world of five countries: two countries (A, B, C, D, and E), that produce clothing and food with one factor of production, labor. Suppose the opportunity cost of clothing with respect to food (a_LC/A_LF) in each country is the following:

A: 1 B: 2 C: 3 D:4 E:5

Suppose the international relative price of clothing is P_C/P_F = 3.5. What can you say about the pattern of trade?

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Joshua StredderLv10

28 Sep 2019

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Related questions

1. When Home has a comparative advantage over Foreign in cloth,

A. The Autarky relative price of cloth in terms of wine is lower at Home than in Foreign:

B. Foreign must have a comparative advantage over Home in wine

C.Home will specialize in producing cloth when there is free trade

D. Both (A) and (B) are correct

E. (A), (B), and (C) are correct.

2. In the Ricardian Model, with countries Home and Foreign and with two goods under trade, assume aLC/ aLW <aLC/ aLW where aLC and aLW are unit labor requirements for cloth and wine in Home and aLC and aLW in Foreign. Suppose a Home-export biased catch-up occurs in Foreign, i.e. aLC decreases. Then it is the case that:

A. The relative price of cloth (vs. food) may go down.

B. The terms of trade of Foreign must improve

C. The terms of trade of Home may remain unchanged.

D. (A) and (C)

E None of the above

tangerbil699

18. In the Heckscher-Ohlin model, when two countries begin to trade with each other

a. the relative prices of traded goods in the two countries converge.

b. the relative factor prices in the two countries diverge.

c. all factors in both countries will gain from trade.

d. all factors in one country will gain, but there may be no gains in the other country.

e. benefits from trade are evenly distributed between the two countries.

19. In the Heckscher-Ohlin model, when there is an international-trade equilibrium

a. the workers in the capital-abundant country will earn less than those in the capital-scarce country.

b. the capital-abundant country will charge less for the capital intensive good than the price paid by the capital-scarce country for the capital-intensive good.

c. the capital-abundant country will charge more for the capital intensive good than the price paid by the capital-scarce country for the capital-intensive good.

d. the workers in the capital-abundant country will earn more than those in the poor country.

e. the relative price of the capital intensive good in the capital-abundant country will be the same as that in the capital-scarce country.

pucesnail109

Consider the following unit labor requirements for two countries, Essos and Westeros, within the context of the Ricardian model of trade, where the two goods are food 1 (F) and horses (H) (you may assume that bushels and horses are equivalent units). Please see attached screenshot for data.

(a) Which country has an absolute advantage in food? In horses? Why?

(b) Which country has the comparative advantage in food? In horses? Why?

(c) Assume that there is autarky, and both goods are produced in each country. What is the relative price of food in terms of horses in each?

(d) Now assume that there is free trade, and the free trade relative price falls exactly between the autarky prices you derived in part. Graph this trading equilibrium in terms of relative supply and relative demand.

(e) Demonstrate, numerically, the gains from trade in Essos and Westeros (hint: rely on trade as an indirect method of production).

(f) Let the price of food, PF = 10 gold coins, and the price of horses, PH = 9 gold coins. Calculate the relative wage of the Westerosi to Essosi.

(g) What do you observe about the relative wage compared to relative productivities? What does this imply? **