ECON 2030 Chapter : 1-25-16 Gains From Trade Ex

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azuremammoth471

15 Mar 2019

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Units do not matter, as long as they are the same for both countries. In this case, england"s opportunity cost for 3 liters of wine is 18 sq. m of cloth, or 1 liter wine for 6 sq. m cloth. Portugal"s opportunity cost for 1 liter wine is 4 sq. m cloth. Portugal has the absolute advantage (5>3) in producing wine. Portugal has the absolute advantage (20>18) in producing cloth. Comparative advantage = giving up less for more. Portugal has the comparative advantage (4<6) in producing wine. England has the comparative advantage (1/6< ) in producing cloth. England only producing for england; portugal only producing for portugal. England: 50 worker/hours wine + 50 worker/hours cloth=100 worker/hours. Portugal: 60 worker/hours wine + 40 worker/hours cloth=100 worker/hours. Suppose: portugal trades 175 wine to england for 875 cloth. Both countries can consume more cloth and more wine: i. e. , both have benefited from trade.

Related Questions

You are given the information shown in the table about production relationship in Pugelovia and Pomerania below:

	Labor Hours Per Unit of Rice	Labor Hours Per Unit of Cloth
Pugelovia	75	100
Pomerania	50	50

You make several Ricardian assumptions: these are the only two commodities, the productivity of labor is constant for each product no matter how much is produced, and competition prevails in all markets.

1)Compute the productivity of each country for each product. Which country has an absolute advantage at producing rice? Which country has an absolute advantage at producing cloth?

2)Compute the relative prices of each product in each country without trade. Which country has a comparative advantage at producing rice? Which country has a comparative advantage at producing cloth?

3)According to the theory of comparative advantage, which country would export rice? Which country would export cloth?

4)If Pugelovia and Pomerania are allowed to trade, what would be the limits for the relative price of rice? What would be the limit for the relative price of cloth?

5)Assume that no trade is allowed between the countries and that Pugelovia has 10,000 hours of labor available to use. If people want to consume rice and cloth in equal amounts, how much rice and how much cloth would Pugelovia produce?

6)Plot the production possibility curve for Pugelovia if it has 10,000 hours of labor available. Label the economyâs production of rice and cloth from part e point A on the PPC.

cerisegiraffe33

Suppose that Portugal and Sweden both produce oil and shoes. Portugal's opportunity cost of producing a pair of shoes is 5 barrels of oil while Sweden's opportunity cost of producing a pair of shoes is 10 barrels of oil. By comparing the opportunity cost of producing shoes in the two countries, you can tell that has a comparative advantage in the production of shoes and has a comparative advantage in the production of oil. Suppose that Portugal and Sweden consider trading shoes and oil with each other. Portugal can gain from specialization and trade as long as it receives more than of oil for each pair of shoes it exports to Sweden. Similarly, Sweden can gain from trade as long as it receives more than of shoes for each barrel of oil it exports to Portugal. Based on your answer to the last question, which of the following prices of trade (that is, price of shoes in terms of oil) would allow both Sweden and Portugal to gain from trade? Check all that apply. 1 barrel of oil per pair of shoes 9 barrels of oil per pair of shoes 3 barrels of oil per pair of shoes 8 barrels of oil per pair of shoes

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

ECON 2030 Chapter : 1-25-16 Gains From Trade Ex

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