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There are 2 countries, Home and Foreign, and 2 goods, Wine and Cheese. In each country, there are 150 workers. But not all workers are the same: some workers are cheese-makers and some workers are wine-makers. Each cheese-maker can produce one pound of cheese and zero bottles of wine, and each wine-maker can produce one bottle of wine and zero pounds of cheese. In the Home country, there are 100 cheese-makers and 50 wine-makers, and in the Foreign country, there are 50 cheese-makers and 100 wine-makers. The relative demand for Cheese of each individual worker is:
RD = Cc/Cw
= 1/ (Pc/Pw)

1. Suppose that both countries are closed to international trade, but cheese-makers and wine-makers can trade with one another within each country. What is the price of cheese (in terms of wine) in each country?

2. Are both cheese-makers and wine-makers better off under free trade than under international autarky in the Home country?

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Joshua Stredder
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

Trade at Negotiated Mid-Price. This problem illustrates an example of trade induced by comparative advantage. It assures that China and France each have 1,000 production units. With one unit of production ( a mix of land, labor, capital and technology), China can produce either 15 containers of toys or 7 cases of wine. France can produce either 3 cases of toys or 7 cases of wine. Thus, a production unit in China is five times as efficient compare to France when producing toys but euqually efficient when producing wine. Assume at first that no trade takes place. China allocates 825 production units to building toys and 175 production units to producing wine. France allocates 175 production units to building toys and 825 production units to producing wine.

A.) What is the production and consumption of China and France without trade?

B.) Assume complete specialization, where China produces only wine. What would be the effect on total production?

C.) The mid-price for exchange between France and China can be calculated as follows. The mid-price for the number of

A.) What is the production and consumption of China and France without trade?

Calculate the production and consumption of France and China without trade below. (round to the nearest integer)

Production if there is no trade Toys

China

Allocated production units _____

Produces and consumes (output per unit x units allocated) _______

France

Allocated production units to ______

Produces and consumes (output per unit x units allocated) ______

Total production and consumption across both countries ______

For which of the following nations does international trade account for the largest percentage of GDP?
A) Japan
B) The Netherlands
C) Germany
D) Great Britain
E) the United States

2. Suppose that workers in Transylvania can produce only two goods-- yo-yos or sweat socks. The Transylvanian currency is the dealer. In what unit is the opportunity cost of yo-yos measured?
A) dealers
B) dealers per yo-yo
C) dealers per sweat sock
D) yo-yos
E) sweat socks

3. For each watch Denmark produces, it gives up the opportunity to make 50 pounds of cheese. Germany can produce one watch for every100 pounds of cheese it produces. Which of the following is true with regard to opportunity costs in the two countries?
A) The opportunity cost of producing watches is lower in Denmark.
B) The opportunity cost of producing cheese is lower in Denmark.
C) The opportunity cost of producing watches is identical in both countries.
D) It is impossible to compare opportunity costs because the two countries use different currencies.
E) In Germany the opportunity cost of producing one pound of cheese is one watch.

4. For each bow the Romans are producing, they give up the opportunity to make 10 arrows. The Dacians are giving up producing2 bows for every 40 arrows they are producing. Which of the following is true regarding comparative advantage?
A) The Romans have a comparative advantage in producing arrows
B) The Romans have a comparative advantage in producing bows
C) The Romans have a comparative advantage in producing arrows and bows
D) The Dacians have a comparative advantage in producing arrows and bows
E) The Dacians have a comparative advantage in producing bows

5. Which of the following is not a basis for trade between two nations?
A) different skill levels of the labor forces
B) one nation's absolute advantage
C) a difference in tastes between countries
D) economies of scale
E) different capital stocks

6. The opportunity cost of producing one car in Germany is 2,000bushels of wheat, and the opportunity cost of producing one car in Canada is 1,200 bushels of wheat. The two countries can realize mutual gains from trade if they agree on terms of trade that are
A) greater than 2,000 bushels of wheat per car
B) less than 1,200 bushels of wheat per car
C) greater than 1,200 bushels of wheat per car and less than 2,000bushels of wheat per car, and Germany produces wheat
D) greater than 1,200 bushels of wheat per car and less than 2,000bushels of wheat per car, and Germany produces cars
E) greater than 1,200 bushels of wheat per car and less than 2,000bushels of wheat per car, and each country produces both goods

7. The rate at which two countries trade one good for another
A) is known as the foreign exchange rate
B) is known as the terms of trade
C) is known as the export line
D) equals the slope of the import line
E) equals the common slope of the countries' production possibilities frontiers

8. Which of the following is true?
A) International trade makes it possible for a country's consumption possibilities to exceed its production possibilities.
B) International trade requires that a country's production possibilities exceed its consumption possibilities.
C) A country's production possibilities always equal its consumption possibilities.
D) A country's consumption possibilities can never equal its production possibilities because of leakages in the system.
E) As long as there is full employment of resources, a country's production possibilities will exceed its consumption possibilities even with trade.

9. Which of the following is not a reason for international specialization?
A) some countries have educated, trained workers, while other countries have unskilled workers
B) tastes and preferences tend to be different in different countries
C) economies of scale can allow larger, specialized producers to operate at a lower average cost
D) mineral resources are often concentrated in particular countries
E) the world price of a good is determined by the world supply and demand for it

10. Ad valorem tariffs on imports are based on a percentage of an import's value; specific tariffs are based on a lump sum per physical unit imported.
A) True
B) False


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