International Economics, ECON 630
HW 1
International Economics, ECON 630
Due on Wednesday, July 2 @ 11:00pm PT
(Total 50 points)
1. Why did the Mercantilists consider holdings of precious metals so important to nation-state building? (6 points)
Wealth was viewed as synonymous with holdings of precious metals. Nation-states wished to become wealthy and this meant obtaining large holdings of precious metals. It is also argued by some that the shortage of coinage constrained the growth of these nation-sates and that precious metals were required to increase the supply of coinage (money) in order for the countries to grow.
2. Assume that both the United States and Germany produce beef and computer chips with the following costs: (12 points)
United States (dollars)
Germany (marks)
Unit cost of beef (B)
2
8
Unit cost of computer chips (C)
1
2
a. What is the opportunity cost of beef (B) and computer chips (C) in each country?
In the United States: the opportunity cost of one unit of beef is 2 chips; the opportunity cost of one chip is 1/2 unit of beef.
In Germany: the opportunity cost of one unit of beef is 4 chips; the opportunity cost of one chip is 1/4 unit of beef.
b. In which commodity does the United States have a comparative cost advantage? What about Germany?
The United States has a comparative cost advantage in beef with respect to Germany, while Germany has a comparative cost advantage in computer chips.
c. What is the range for mutually beneficial trade between the United States and Germany for each computer chip traded?
The range for mutually beneficial trade between the United States and Germany for each unit of beef that the United States exports is: 2C < 1B < 4C
d. How much would the United States and Germany gain if 1 unit of beef is exchanged for 3 chips?
Both the United States and Germany would gain 1 chip for each unit of beef traded.
3. “If U.S. productivity growth does not keep up with that of its trading partners, the
International Economics, ECON 630
Due on Wednesday, July 2 @ 11:00pm PT
(Total 50 points)
1. Why did the Mercantilists consider holdings of precious metals so important to nation-state building? (6 points)
Wealth was viewed as synonymous with holdings of precious metals. Nation-states wished to become wealthy and this meant obtaining large holdings of precious metals. It is also argued by some that the shortage of coinage constrained the growth of these nation-sates and that precious metals were required to increase the supply of coinage (money) in order for the countries to grow.
2. Assume that both the United States and Germany produce beef and computer chips with the following costs: (12 points)
United States (dollars)
Germany (marks)
Unit cost of beef (B)
2
8
Unit cost of computer chips (C)
1
2
a. What is the opportunity cost of beef (B) and computer chips (C) in each country?
In the United States: the opportunity cost of one unit of beef is 2 chips; the opportunity cost of one chip is 1/2 unit of beef.
In Germany: the opportunity cost of one unit of beef is 4 chips; the opportunity cost of one chip is 1/4 unit of beef.
b. In which commodity does the United States have a comparative cost advantage? What about Germany?
The United States has a comparative cost advantage in beef with respect to Germany, while Germany has a comparative cost advantage in computer chips.
c. What is the range for mutually beneficial trade between the United States and Germany for each computer chip traded?
The range for mutually beneficial trade between the United States and Germany for each unit of beef that the United States exports is: 2C < 1B < 4C
d. How much would the United States and Germany gain if 1 unit of beef is exchanged for 3 chips?
Both the United States and Germany would gain 1 chip for each unit of beef traded.
3. “If U.S. productivity growth does not keep up with that of its trading partners, the