ECON 3HH3 Study Guide - Quiz Guide: Hogwarts, Real Wages, Comparative Advantage

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19 Apr 2019

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Home assignment #2: answer key: (8 points) this problem is based on the ricardian model. Assume that 2 countries, gryffindor and slytherin, use troll labor to produce 2 goods, apples and candy. Use the information below to answer the following questions. P*c = 6: suppose the world relative price of apples in the trade equilibrium is pa/pc = 1. Answer: trade patterns in the ricardian model depend on the comparative advantage. Since p*a/p*c < pa/pc (0. 5<1. 5), then slytherin has lower opportunity cost of producing apples. This means that it has a comparative advantage in producing apples, while the. Gryffindor has a comparative advantage in producing candy (pc/pa < p*c/p*a (2/3<2)). Answer: gryffindor will produce only candy, so its wage in terms of candy is its mplc. To calculate its wage in terms of apples, we need to know how many apples. Wage in terms of apples = w/pa = pc*mplc/pa=(pc/pa)*mplc = 1*6 = 6.

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5. Terms of trade

Suppose that France and Denmark both produce oil and wine. France's opportunity cost of producing a bottle of wine is 5 barrels of oil while Denmark's opportunity cost of producing a bottle of wine is 10 barrels of oil.

1.By comparing the opportunity cost of producing wine in the two countries, you can tell that ( Denmark, France) has a comparative advantage in the production of wine and ( France, Denmark) has a comparative advantage in the production of oil.

2.Suppose that France and Denmark consider trading wine and oil with each other. France can gain from specialization and trade as long as it receives more than ( 1 barrel, 1/10 barrel, 1/5 barrel, 5 barrels, 10 barrels) of oil for each bottle of wine it exports to Denmark. Similarly, Denmark can gain from trade as long as it receives more than ( 1 barrel, 1/10 barrel , 1/5 barrel, 5 barrel, 10 barrels) of wine for each barrel of oil it exports to France.

3.Based on your answer to the last question, which of the following terms of trade (that is, price of wine in terms of oil) would allow both Denmark and France to gain from trade? Check all that apply.

A.12 barrels of oil per bottle of wine

B.2 barrels of oil per bottle of wine

C.6 barrels of oil per bottle of wine

D.9 barrels of oil per bottle of wine

5. Terms of trade Suppose that Greece and Germany both produce oil and stained glass. Greece's opportunity cost of producing a pane of stained glass is 4 barrels of oil while Germany's opportunity cost of producing a pane of stained glass is 10 barrels of oil. By comparing the opportunity cost of producing stained glass in the two countries, you can tell that (Greece / Germany) has a comparative advantage in the production of stained glass and (Greece / Germany) has a comparative advantage in the production of oil. Suppose that Greece and Germany consider trading stained glass and oil with each other. Greece can gain from specialization and trade as long as it receives more than a. 1 barrel b. 1/10 barrel c. 1/4 barrel d. 4 barrels e. 10 barrels of oil for each pane of stained glass it exports to Germany. Similarly, Germany can gain from trade as long as it receives more than a. 1 pane b. 1/10 pane c. 1/4 pane d. 4 panes e. 10 panes of stained glass for each barrel of oil it exports to Greece. Based on your answer to the last question, which of the following prices of trade (that is, price of stained glass in terms of oil) would allow both Germany and Greece to gain from trade? Check all that apply. 8 barrels of oil per pane of stained glass 2 barrels of oil per pane of stained glass 6 barrels of oil per pane of stained glass 18 barrels of oil per pane of stained glass

ECON 3HH3 Study Guide - Quiz Guide: Hogwarts, Real Wages, Comparative Advantage

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