PROBLEMS

  1. At the beginning of the chapter, there is a brief quotation from David Ricardo; here is a longer version of what Ricardo wrote:
    England may be so circumstanced, that to produce the cloth may require the labour of 100 men for one year; and if she attempted to make the wine, it might require the labour of 120 men for the same time…. To produce the wine in Portugal, might require only the labour of 80 men for one year, and to produce the cloth in the same country, might require the labour of 90 men for the same time. It would therefore be advantageous for her to export wine in exchange for cloth. This exchange might even take place, notwithstanding that the commodity imported by Portugal could be produced there with less labour than in England.
    Suppose that the amount of labor Ricardo describes can produce 1,000 yards of cloth or 1,000 bottles of wine, in either country. Then answer the following:

    1. Question

      0P+UkkE3HAxh2NTP5JvRn4RsHl+/HqxkIE5JQiBRZUJn9khayl6BIMKWroOaDtWoVs6b2rXfGf4R66NfQOlPgE6RNl/PqtLu1YmQAKvaTs5GNwc6IK5R9zJcI0ax232jl7CrxuxVImCCmKSeaPgl5mfwzA/1D6URS76bPj0FZ944o0qviEyoIJAHvKRzrhoqeLyY/MlQ0YHIYSZT5YvmFjV7p92G56LEWkQPHCbxxYh0C4lfQmV1DKjvwybm6hpGWf0fLWbsa2cJB1cUNpE9Da3SfYrqXVprvf+rSXf0Ust9stzb
      Prob 2 1a. What is England’s marginal product of labor in cloth and in wine, and what is Portugal’s marginal product of labor in cloth and in wine? Which country has absolute advantage in cloth, and in wine, and why?

    2. Question

      09Poi2Ua7IkFkOeLqhYU1A9aeCSqn4nN9pvu5tDIvwS6GgqNJAEsYi6kvKCDeBd2nvV2hK9AEk62sDkWo26C13bzxdFN4EtwzFU3IOfAGUfzuwNqikvJoEvggfC8OmYTUDiaNa1KflkorsDStqfzw982Yu6b//kEMWLRydyn6twkhvayZShPwqfvzCPraiZMhi/N/Xp+qDZqZveTGsO2snVMI5/nUy4O1P0wcSbAjQbifMtdFTtXTpfS7AwEQ15/rSshMLwl2RgQvrpmK+wGKMYkrnf/mlFMNXY5QmCRJ0ESWkVlq99CP74Ny4bWtKOB0fR9G/rGUDmu9Kei
      Prob 2 1b. Use the formula PW/PC = MPLC/MPLW to compute the no-trade relative price of wine in each country. Which country has comparative advantage in wine, and why?
  2. Suppose that each worker in the Home country can produce three cars or two TVs. Assume that Home has four workers.

    1. Question

      WDHY/qjW2DJZ2MB5ViDD48dTnX0mXjXaqjiK4qZ6Pr3x3eSiQPeatQ63L5kerGmDpMdFj3la4FZvdg01W8vV/4Y7A+ooKTrSPf1IqhIA9mIV+Znl
      Prob 2 2a. Graph the production possibilities frontier for the Home country.

    2. Question

      GiQd72dNsfQLrO/Ekq3ROyYkSDXx64VDXPT5dQRuW7AfaOdt1UvJzc2RiYJdFEpuk9BAHrSMtesGZ/gN+UTg92jv1ek=
      Prob 2 2b. What is the no-trade relative price of cars at Home?
  3. Suppose that each worker in the Foreign country can produce two cars or three TVs. Assume that Foreign also has four workers.

    1. Question

      1vAF4/N8CeUgJEwjnmIUwQjJXd/nGBUgs2ZwbNNFCQVnpuMYQdkMNhB0e0r5g1X/lgiPh250Ce4pdkzp8cFjDTSeicVCr1IDZ9U8Q6hFNkHr7v2W
      Prob 2 3a.Graph the production possibilities frontier for the Foreign country.

    2. Question

      HTrbEEhqJ2dnwyOGP4qA8cNGyKrjjj3y2Q7BXxPt/hWMfRi9e0wyKdYNmyrfHUyu1FiXnf0ndYrY997v+8k0xiqg0kXJNKGM
      Prob 2 3b. What is the no-trade relative price of cars in Foreign?

    3. Question

      0v6ZvWNZu27EyEWcuOQcDTLCKcXOBmSgRREyi1FarIV/Ng5hV74m1mz1Dmk8zBT3iW29xL+1NIjzCr63mSHLt26egu3VC8u56IyyjXNGUyl/eSFJ1Q1KVGM3dPp/YhFEi0RopsAmRZDpdr92wNvqnokQCKZqUiFma+aZpKfc5RbojJWgB4/Fjov96h0=
      Prob 2 3c. Using the information provided in Problem 2 regarding Home, in which good does Foreign have a comparative advantage, and why?

  4. Question

    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
    Prob 2 4. Suppose that in the absence of trade, Home consumes nine cars and two TVs, while Foreign consumes two cars and nine TVs. Add the indifference curve for each country to the figures in Problems 2 and 3 Label the production possibilities frontier (PPF), indifference curve (U1), and the no-trade equilibrium consumption and production for each country.
  5. Now suppose the world relative price of cars is PC/PTV = 1.

    1. Question

      OXYW8d+sDRB7YcbHy3w7ZDBLtO3v/NDzKCooBl58TuKTkFTtY/jwQEpNPjQITx1LjClMBXoicDcVcAEgsSGb9Wen93hDwIfTKdVzaKgBgYs=
      Prob 2 5a. In what good will each country specialize? Briefly explain why.

    2. Question

      ckOjcMX3rLcASa6dMkGQWaG5DE1UhNqwyCn12vP3owvPNxrfqwvMBIYuqrS+RUAIdSUksW1pzh3zr9PUIsVzlMzJsO1T4UFqc2nX4wUQ4EePh6FDLcE+NYXQnuoutL1F+cOILC3Ly0PqbHIhlx43eWZnu/IUOdP5dA5+7t8PUHdEbg+lwOFcx6WcCskdTwA0TJDoH5vwcwCtzpoWXzPtyBbU8a6mFLb5YalLYbRUTn+vh6oi/hwz3S2EINdFiYaVXucKWA==
      Prob 2 5b. Graph the new world price line for each country in the figures in Problem 4, and add a new indifference curve (U2) for each country in the trade equilibrium.

    3. Question

      z9lfxGuKgR9QDkKAlNRb9h5e+QI7OG3fBzwCrjH30wLzn0EkwBigcEnAKWsq6m6O0snPh35FO1kFa12T/PTgUmiOW85FT2hJB4Qf7CLmK+/jyJGhg7HPWyyxmlUHoZaliDDaN/qldndnXxsH4+NscQ72k84E5/Or9NmBTrzoUV9RdrNp
      Prob 2 5c. Label the exports and imports for each country. How does the amount of Home exports compare with Foreign imports?

    4. Question

      AZ4/NvE0oQ+Y2GMO8hAggIMzWsGF8MJcQnqhoUFKsYJY89j7IVNnb48IFzFVKoz7JXsf4BcFr3XS+fEAS/A5/YEbl1u5DDG6ZBzMYMOml6sSmpYw
      Prob 2 5d. Does each country gain from trade? Briefly explain why or why not.
  6. Answer the following questions using the information given by the accompanying table:

    1. Question

      QYz71OBjhn+aXN0DinCh2VV7fBZeuMqva4garL36Ko0apDtHz4KJ4XKrdbXOg3VUNYMCQfv8K6laR3EWrt0XQyMnuT8ZIiEQpdMkzpu+llfT+HG5gvt0opbOs/L0XScodgJdxMG+SZs7a/UTP+W/lfTPXnWXi4+4fS40w7gudOr1Z4NZ02fwGBM7j3Zpux+qW0O4lvfbKFM0Aol0BPnuydig0T0hCbbgcfqyOKiloE4=
      Prob 2 6a. Complete the table for this problem in the same manner as Table 2-2.

    2. Question

      XK2Yac3s2dzk2qiF3+sYVBLgO5defOnjj48w/sqjPoIbnrCHLu5nOSlXHO+YqS2JGsNuQrH5Mpm31NPZdbU/YMqUupdyFLK86ua4iPwFJfa6XoKOL8EwmXZaKKxQVofT2Xm7IyyluDsMZHJnQm5qZG6hSJDh6UCtrA2r7c6CsfDg5btSf+PtYZbrwbn0yN3X2Hf4BU2ntEMreXjY287wsA==
      Prob 2 6b. Which country has an absolute advantage in the production of bicycles? Which country has an absolute advantage in the production of snowboards?

    3. Question

      xIPgGS5y2nMYRmqrHK2ajYEqWR7CKFAHuZhUmjQb8w/ylpG599Kzh7DPtoxmgzfVPTiQnuS2wpmTTy7cJ6FyhRFd7erzAj67sPLCWSOe7dn9DB1YPRCQQvC0Upvda05BiD7FoOLGD2DvvwZCUT878XegC+Tw1e/Cx2i6D/lxqLxdno7D4ytDSAIekZ8V1ODnm77zciOcK+eloujCXyWWeTPveJQ=
      Prob 2 6c. What is the opportunity cost of bicycles in terms of snowboards at Home? What is the opportunity cost of bicycles in terms of snowboards in Foreign?

    4. Question

      1F+dOsRNJUP9/17gitXZ6p8Al8QRKaZvCeSmpb3FbxRMhwjtRY12yTLWadHmDNDN06ox1fHhupsHm2ZZQl6X0Dw1aieZa0sLQNiQfclKDdAbwH0x2g3gelrwMj5EzAwREo5Gx1dv/409pWIO
      Prob 2 6d. Which product will Home export, and which product does Foreign export? Briefly explain why.
  7. Assume that Home and Foreign produce two goods, TVs and cars, and use the information below to answer the following questions:

    1. Question

      Sm0x804+5RmvRAv96EZjugJOu9RORp14E590CD0740hTawFHtCy4ZQBL57W25T6I14m5Uvx0xzPOAhmqKQY5r/rV4wWYxlCTGC5c23+XHOdYJuJRd2hC0euzZC+Bg2zVfz4U57ugMWgVBhiKj9EUTUor7N0eNnd4ZLec4t5jZ49bK7xvmHF/89oDRkxmc95w
      Prob 2 7a. What is the marginal product of labor for TVs and cars in the Home country? What is the no-trade relative price of TVs at Home?

    2. Question

      LFXxjDWAMHfcxSd3/5/0SS9s1Fc/j7siJTxMEXcQSG+SlaBinrbLBmljgmT2WQjcC6/MuvxzIW0gQp5FoAWGSFt1J0V9h5e4vp/Qhn0UQTuByrCps7EmN5I+N8zjs2Y0pvh3zTjvNdZJYhdq47xPVQso2+x62BkgZJtG4OQZ/Bh0SasIQp8LXbSTSBNESTSLmkeS1BEO+WE=
      Prob 2 7b. What is the marginal product of labor for TVs and cars in the Foreign country? What is the no-trade relative price of TVs in Foreign?

    3. Question

      t8aly57ITyiKxLyGVGwOvVFEfOcyYY+/eVvbxkK51L2tFy68Jb1osdFhWcmBgL8kr2sfIgDrcEKS/1zNvL2KoMSteCFIbsgder/1LUthJZrR0t+N2FuhJKZT3RI9YcvxA3DwL+lm4udvM3rJ/0lXNrNOKivdH1BWGry1xn/jxRC2gEVvxDuGZL6pNs3cnSzEuQ3ggZS990q1ur8yOxhMfcKfFw47gyjpJfVC0erkFlbZ6mWOgFIl+ARhRQwD2sUPJ80UIg==
      Prob 2 7c. Suppose the world relative price of TVs in the trade equilibrium is PTV/PC = 1. Which good will each country export? Briefly explain why.

    4. Question

      B//wIjCDhWAQYncqIxuzmzLM+SzJS2coML4QgKOzjSE/p3au8uMTxFSTXsCjhMvxNeNhVFfBcSQhGI+rANVb405bL2MVYBTF/UtXng7ouatd7L/39J7FmeFO7y790cFFg7rFLQnILizhsJUIMrWSYyn04UQp6jGTJnfQ8gwJHo1mvcngY1hQ60hH6XlNocBrUzZuiq8m7Zwva8qP7Rw8pkFDKRPe2HoCHVVtjEFKfEs/tbp5HizCmxDGyiiXnc8UVsDipRNRPKsirdq+DWzqfLDz/Gg=
      Prob 2 7d. In the trade equilibrium, what is the real wage at Home in terms of cars and in terms of TVs? How do these values compare with the real wage in terms of either good in the no-trade equilibrium?

    5. Question

      YhuOeZtW/WTxzo2dNaAjB8QVGU4Tp4wJdVUBE8VyV4Xco4DS/8ArQDadyCwdhb3T7DDPtWWGS3ONe8iQy2+ezSQa3nAqfx0N2pj+QkCJn1RiThpBKgyFowLGMx3gPg62CW3/+L1Y6kOMDnFO9gt8kM/dclbHrZaQ2yeDZ+xV9gJLlxSnVTKH/eexPPb8IsBbA59nv72ymJXCzOq5CAm834F0xDtjOiRWB0rpy+VBBFfmnp2aI4pqzPRDQX96AriiHtP5oRy6hwPZLn30hqJXcnFVKKo=
      Prob 2 7e. In the trade equilibrium, what is the real wage in Foreign in terms of TVs and in terms of cars? How do these values compare with the real wage in terms of either good in the no-trade equilibrium?

    6. Question

      VIIvuZ7EcK1bx/WWe1uiBw97AgnAWMK0CHlT/Sq0XNqWk3VNO11jZeiTi9F0JvPn19KAMX//i8nJS6cKkVJ1G+KCCk3RNyps2xUDdn6knRKdJwtrqKCIHD2qbrgjgFywLT1fQNQLz3SGJyPbHf7PcMQQZyxSIj+9SSKP/p9+FtIJtObQBu59PuPPlP87flMS42A3qWMNmok2EIt0Hd55vMA1xd17KzNK
      Prob 2 7f. In the trade equilibrium, do Foreign workers earn more or less than those at Home, measured in terms of their ability to purchase goods? Explain why.

  8. Question

    Z9J+vo1eIP3c69QUYb1ZIitipzrGImV0/r/fYE+zdodWRZd9PT8cyqmQ2/UWnsopjfP0YDKgknDuJkNXsuS1qUSd7uB1JgfomZZDeEYmle9TTV4pVI79MSItkFq3+fQvO+bsVjo2h+TW0gouPrORJ0q6h172VJYqpqK2YWTv9DaDeQg+6yE6RepdbUc0gNg8XsFhE9Rmk5vukQ0PFwsv6XwgmVjKO5NpVu/A0+JwoAZI4Yx7r8n1Y1xWgCND9zPaER4C2rM0NDMtt0ND
    Prob 2 8. Why do some low-wage countries, such as China, pose a threat to manufacturers in industrial countries, such as the United States, whereas other low-wage countries, such as Haiti, do not?

Answer Problems 9 to 11 using the chapter information for Home and Foreign.

    1. Question

      IiYv9vQ6XF/3rF8/HZPji0R0RNcLvPW1NxLWlY6J5/YmXmxRdW+Grp4+NHVRxxF/LKdvc30hgu+CLsAfKTmjwpgOIbLn32Yy2XC/TnNVZAkMJ6i+npLqMx5rCu40U6Q53JbGsJY6K3+vbDkHyb54kVzmzggLqJpViEyUp3duS7L3Ec3gPahYWeq+5XXYwBw5QPBYCMo4W5g7cAq9
      Prob 2 9a. Suppose that the number of workers doubles in Home. What happens to the Home PPF and what happens to the no-trade relative price of wheat?

    2. Question

      RZKVVEyEbNKV7i0Qnekfz6EkaypPA3P8aeeadRE31nrMhDVPxYBNsa7fpkI1gFK/zzo2O3QS06FayaW4MBnIPCaAxiN9sEIP+BjOSHUjGQZAwnJtDKd9GMcs2FnfttbhAv1dUliJ08DoJpbMMIPxirxDBe7oGCdbaFX7J6PrehGhgSOAweLLfOLdILkM0ezMhU6Z2TeCV6qbVV529Ewr4Qv3V2o+1HpVFCjh9JDc1j4U0UScCus+MMdoc+rukFwTWIJcZ9T6gzluKGd3SoufNYlvRRXmrcd2RPQI+eJ8kW8HY+AVPWIEbbtASsACiTwrkP0XGNpOvmIcx4GhWnPUxl5Zxi3jbVun/F044GNiYiGqS2vfZ66hGK9Mrbxn9Jy+UwxLQb0uEP5ABK2yCDcMsJoViUnr+EiB
      Prob 2 9b. Suppose that there is technological progress in the wheat industry such that Home can produce more wheat with the same amount of labor. What happens to the Home PPF, and what happens to the relative price of wheat? Describe what would happen if a similar change occurred in the cloth industry.

    1. Question

      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
      Prob 2 10a. Using Figure 2-5, show that an increase in the relative price of wheat from its world relative price of will raise Home’s utility.

    2. Question

      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
      Prob 2 10b. Using Figure 2-6, show that an increase in the relative price of wheat from its world relative price of will lower Foreign’s utility. What is Foreign’s utility when the world relative price reaches 1, and what happens in Foreign when the world relative price of wheat rises above that level?
  3. (This is a harder question.) Suppose that the Home country is much larger than the Foreign country. For example, suppose we double the number of workers at Home from 25 to 50. Then Home is willing to export up to 100 bushels of wheat at its no-trade price of PW/PC = rather than 50 bushels of wheat as shown in Figure 2-11. In the following, we draw a new version of Figure 2-11, with the larger Home country.

    1. Question

      W/U9xcwy+ZhgBhvyQIqBxDhbmOj0Oy0CZZs8nURJalRCqYJk1zEE+qyXldkPmm8RvGJOfD/XTp4lFG+G5GQtlPgkIO8ynsByDH7qcnG5BpsEsgqNHnQqNApruHHWgPnEUxp7GUMVvHTm5yMbcJ75vHB6WaohOGJqwesd5Ha4jmjDj9yWw6nUOkd4lfERkKaogmgsmxv0nPtqmVLvbhXygbzz2LTLKu7qeGFB7keQ69yDVtpxHBZ2R8Zl6QhNiD4uHS27h78gwMtoXZOcL02fwBlv3xNW8zrVW7tFN66LuG/VGRu1aAE2LfcuAtbLKLj4nc7d4FiTPdCS6tozlfXdSHGMtkUqDf53anZj8INz8bdzSp0jvk/0hd6N6W3nx0LMNLKryQ1c8OL5gNp9aXM5pmbd93gZBj3M0dOLoQ==
      Prob 2 11a. From this figure, what is the new world relative price of wheat (at point D)?

    2. Question

      SE5Os2VQ4yhWwwWN3X0mVSEUPolbx4rTOTaYgwBMmgDU9TvOVeE5RpLN0nB2ZtUcJa4UMytUJDeaHYXzhqEx0b9OqUV2kEu4zc+kuLDN/BXo1EirarT/Fv7D+XQkBpYnbuG0/XhdoOiFgdnYZEUp+Fe6NAqdWFSiiv2QuQPDq2zlaFMY6TxC4cyfVDbNhwLTrMLokGmVDya/ppzUwechYfxGevTtMg/xRE3Zh0R1d1PHP6H9I1hxMLwfTvsH2dFU
      Prob 2 11b. Using this new world equilibrium price, draw a new version of the trade equilibrium in Home and in Foreign, and show the production point and consumption point in each country.

    3. Question

      8190uf5PUdHD2YZ47BkYjlIlON3+QUdV4zVemtdBjepqnhLSdHSscxOExKFvgqd7F4J7/BpdJvF/+/ilz0CpEdymUNJTFL19LxThE3oAHwWt/BuliJ4s1Q==
      Prob 2 11c. Are there gains from trade in both countries? Explain why or why not.

  4. Question

    VbMHXB89Z9jt1yCu6MDmtFZICtA9GGfCItXQzf8K7TxY5RvKoDsqKX4QuqN44lYU5LMibA3/BNXTQ3yqeiy/dBNTilwvJeVlU/oMGS6K4oKAX5LqBgihlwoV1QMhI7Gjdy+XY38TakP+di+OSSwdC0nOHOg2+uwiQMhX0hZ7ZEjZWcHUVvq01onhGPXHEWXoZ85Zr4KQmLTNOj0e64cntIj5lYofjn1T3BLZtmzlo8MsY+UP1+hxN0rgX2SKnm1NzBmcbUGVXT+26y3NR4dwscxjzYMZ8qzrStyE5mQGgd/5qk63Ovi9YaTc0CWd0xJrzDjEdO6Pn2zw2AW2
    Prob 2 12. Using the results from Problem 11, explain why the Ricardian model predicts that Mexico would gain more than the United States when the two countries signed the North American Free Trade Agreement, establishing free trade between them.