TAMU ECON 452 - Problems3 (4 pages)

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Problems3



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Problems3

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Pages:
4
School:
Texas A&M University
Course:
Econ 452 - Internat Trade Policy

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P ROBLEM S ET O NE Name Economics 452 International Trade Theory and Policy 1 Home has 1200 units of labor available It can produce two goods apples and bananas The unit labor requirement in apple production is 3 while in banana production it is 2 a W rite the equation for Home s PPF in labor constraint form with general notation with numbers plugged in and in slope intercept form Determine Home s maximum production of apples and bananas Graph Home s production possibilities frontier with bananas on the vertical axis making sure to label both axes 0 b W hat is Home s opportunity cost of apples in terms of bananas and what is its interpretation W here does it appear in the PPF equation c In the absence of trade what would the price of apples in terms of bananas be and why 2 Home is as described in problem 1 There is now another country Foreign with a labor force of 800 Foreign s unit labor requirement in apple production is 5 while in banana production it is 1 a W rite the equation for Foreign s PPF in all three forms Determine Foreign s maximum production of apples and bananas Graph Foreign s production possibility frontier 0 b W hat is Foreign s opportunity cost of apples in terms of bananas c Describe the pattern of comparative advantage which country has comparative advantage in which good and why 3 Now suppose world relative demand takes the following form Demand for apples demand for bananas price of bananas price of apples RD D A D B P B P A a W hat is the world relative supply of apples to bananas if each country produces only its comparative advantage good Construct the world relative supply curve for apples in terms of bananas Graph the relative demand curve for apples in terms of bananas along with the relative supply curve 0 b W hat is the equilibrium relative price of apples in terms of bananas Compare it to the price of apples in terms of bananas in each country in the absence of trade c W hat does each country produce under free trade Describe the



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