econ35
1
True/False/Uncertain
For each of the following statements, say whether it is true, false or uncertain and explain why using a couple of sentences, graphs and/or equations.
1. Research on the Great Trade Collapse in 2008-2009 has established that most of the decline in trade was due to a sudden surge in protectionism.
2. In the Ricardian model we only need to know the marginal product of labor in both goods for Home and Foreign in order to establish what the two countries export.
3. Although absolute advantage does not determine the pattern of trade, it does determine real wages and therefore consumption.
2
Ricardian Model - Home Autarky
Consider a country, Home, populated by a labor force of 120 workers. The country can produce two goods, Apples and Bananas. Labor is the only factor of production and it can freely move across sectors. The marginal product of labor in Apples is 1, i.e. an extra unit of labor produces an extra Apple. An extra unit of labor produces 2 Bananas.
1. If the country does not produce any Bananas, how many Apples can it produce (by employing all its labor in the production of Apples)?
1
2. If the country does not produce any Apples, how many Bananas can it produce (by employing all its labor in the production of Bananas)?
3. What is the opportunity cost of producing an Apple in terms of Bananas? What is the opportunity cost of producing a Banana in terms of Apples?
4. Draw the Production Possibility Frontier of this economy, with Apples on the horizontal axis and Bananas on the vertical axis.
5. Given a certain wage w that a worker in either sector earns and given that producers of Apples and Bananas are perfectly competitive (i.e. they make no pro…ts), what is the relationship between the wage and the price of apples pA and between the wage and the price of Bananas pB ? (You need to write an equation that describes the relationship).
6. What is the relative price
pA pB when the Home
True/False/Uncertain
For each of the following statements, say whether it is true, false or uncertain and explain why using a couple of sentences, graphs and/or equations.
1. Research on the Great Trade Collapse in 2008-2009 has established that most of the decline in trade was due to a sudden surge in protectionism.
2. In the Ricardian model we only need to know the marginal product of labor in both goods for Home and Foreign in order to establish what the two countries export.
3. Although absolute advantage does not determine the pattern of trade, it does determine real wages and therefore consumption.
2
Ricardian Model - Home Autarky
Consider a country, Home, populated by a labor force of 120 workers. The country can produce two goods, Apples and Bananas. Labor is the only factor of production and it can freely move across sectors. The marginal product of labor in Apples is 1, i.e. an extra unit of labor produces an extra Apple. An extra unit of labor produces 2 Bananas.
1. If the country does not produce any Bananas, how many Apples can it produce (by employing all its labor in the production of Apples)?
1
2. If the country does not produce any Apples, how many Bananas can it produce (by employing all its labor in the production of Bananas)?
3. What is the opportunity cost of producing an Apple in terms of Bananas? What is the opportunity cost of producing a Banana in terms of Apples?
4. Draw the Production Possibility Frontier of this economy, with Apples on the horizontal axis and Bananas on the vertical axis.
5. Given a certain wage w that a worker in either sector earns and given that producers of Apples and Bananas are perfectly competitive (i.e. they make no pro…ts), what is the relationship between the wage and the price of apples pA and between the wage and the price of Bananas pB ? (You need to write an equation that describes the relationship).
6. What is the relative price
pA pB when the Home