Suppose with all of their resources, the quantities of MP3 players or mobile phones produced by countries A and B are as follows:
country
Smartphones(units)
MP3 players(units)
A
500
350
B
550
450
(a)Which country has an absolute advantage in the production of MP3 players?
(b)Suppose the terms of trade is 1.35 units of smartphones for 1 unit of MP3. Calculate the gain to Countries A & B from trading MP3 respectively.
(c)suppose Country C offers new terms of trade which are 1 unit or smartphones for 1 unit of MP3. Which country will trade MP3 with Country C? explain your answer.
Suppose with all of their resources, the quantities of MP3 players or mobile phones produced by countries A and B are as follows:
| country | Smartphones(units) | MP3 players(units) |
| A | 500 | 350 |
| B | 550 | 450 |
(a)Which country has an absolute advantage in the production of MP3 players?
(b)Suppose the terms of trade is 1.35 units of smartphones for 1 unit of MP3. Calculate the gain to Countries A & B from trading MP3 respectively.
(c)suppose Country C offers new terms of trade which are 1 unit or smartphones for 1 unit of MP3. Which country will trade MP3 with Country C? explain your answer.
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Related questions
The following table provides data on the productivity of a single unit of a resource in producing clothing and cars in both Japan and Canada.
|
|
One Unit of Resource Produces either/or but not both |
|
|
|
Clothing (meters) |
Cars |
|
Japan |
6 |
2 |
|
Canada |
2 |
1 |
For simplicity, assume that these are the only two countries in the world, the production of each product in each country is subject to constant returns, and each country maintains full employment thanks to costless mobility of resources within the same country. Suppose Canada is endowed with 50 units of this all-purpose resource while Japan is endowed with 20 units. Answer the following questions. Justify your answers.
Suppose that, when trade between the two countries is not permissible, each country allocates half of its resource endowment to the production of one good.
a)If trade between the two countries is permissible. Which country would specialize in the production of clothing? Which country would specialize in the production of cars? Indicate the production points of each country in this case. What is the world total output of each product in this case?
Q2. (35 points) The following table shows the output of textile and auto one unit of labor can produce in the U.K. and the U.S.:
| Textiles | Autos | |
| United Kingdom | 16 | 4 |
| United States | 6 | 3 |
A)Which country has an absolute advantage in textiles and which country has an absolute advantage in autos?
B)What is the autarky price ratio of autos relative to textiles in each country?
C)Which country has a comparative advantage in textiles and which country has a comparative advantage in autos?
D)Which product should each country export?
E)Suppose the United States has 300 units of labor available. Construct the production-possibilities frontier (PPF) and identify the optimal autarky equilibrium (using an indifference curve) for the United States.
F)Suppose the international price is set at 1 auto:3 units of textile and the U.S. decides to completely specialize at producing the product in which it has a comparative advantage. How would the above graph change? Use the graph to show the gains from trade and the export and import quantities. For each unit of export good, how much does the U.S. gain (measured in terms of the other good)?
G)Discussion: At what level of international price ratio will all the benefits from trade accrue to the United States?
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