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Exam 3: The Classical Model of International Trade

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Question 1

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Answer the question(s) below based on the following diagram of a country in international trade equilibrium. -Refer to the figure above.This country has comparative advantage in good

A) S.
B) T.
C) Y.
D) Z.

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Question 2

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Answer the question(s) below based on the information in the following table Country $\begin{array} { | c | c | c | } \hline \text { Goods } & \mathrm { A } & \mathrm { B } \\\hline \mathrm { X } & 3 & 9 \\\hline \mathrm { Y } & 4 & 2 \\\hline\end{array}$ (numbers indicate hours of labor per unit of output) -Refer to the table above.The relative price of beer in terms of wine in B is

A) $4.50.
B) 2.
C) 4.5.
D) $2.00.

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Question 3

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An international division of labor will have no effect on total world output because resources are limited.

Starting from a situation where country A which exports good S and imports good T has a larger trade triangle than country B,explain how the process of reciprocal demand leads to international trade equilibrium.

The classical theory predicts that

In the classical model,the direction of trade is determined by

Answer the question(s) below based on the information in the following table Country $\begin{array} { | c | c | c | } \hline \text { Goods } & \mathrm { A } & \mathrm { B } \\\hline \mathrm { X } & 3 & 9 \\\hline \mathrm { Y } & 4 & 2 \\\hline\end{array}$ (numbers indicate hours of labor per unit of output) -Refer to the table above.Country B has absolute advantage in

Given the input-output relationships in the table below: $\begin{array}{} &     Countries \\& \text { A } & \text { B } \\\text { Goods } & & \\\text { X } & 8 & 4 \\\text { Y } & 4 & 1\end{array}$ (a) Which country has absolute advantage in which good and why? (b) Which country has comparative advantage in which good and why? (c) If A is endowed with 8000 hours of labor,how much X will it produce after trade begins? How much Y? Explain. (d) What is the allowable range on A's wages relative to B's if trade is flowing between these two countries according to comparative advantage?

A country in autarky does not trade.

Can a country have comparative advantage in all products?

Answer the question(s) below based on the information in the following table,where the numbers represent the number of labor hours it will take to produce a unit of the given good. $\begin{array} { | c | c | c | } \hline & \text { Spain } & \text { France } \\\hline \text { Grapes } & 3 & 9 \\\hline \text { Textiles } & 1 & 2 \\\hline\end{array}$ -Refer to the table above.If complete specialization occurs,and France has a labor force of 30,000 hours of labor,then after trade begins it will produce

Answer the question(s) below based on the information in the following table,where the numbers represent the number of labor hours it will take to produce a unit of the given good. $\begin{array} { | c | c | c | } \hline & \text { Spain } & \text { France } \\\hline \text { Grapes } & 3 & 9 \\\hline \text { Textiles } & 1 & 2 \\\hline\end{array}$ -Refer to the table above.France will gain from trade so long as the international price of grapes measured in terms of textiles is below

Mercantilism is another name given to the version of capitalism that has emerged in the globalized world of the 21st century.

Suppose that workers in A can produce 1 unit of S in 3 hours and 1 unit of T in 9 hours.Suppose that the relative price of S in B is 2.Graph the PPF for country A.Indicate the exact slope of the PPF.Show how the autarky equilibrium is determined.Illustrate a hypothetical international trade equilibrium,including production and consumption points,and trade volumes for a given (your assumption-be explicit)but permissible value of the international terms of trade.

If country A has a larger trade triangle than country B,reciprocal demand will lead to an increase in the relative price of A's imports.

Answer the question(s) below based on the information in the following table Country $\begin{array} { | c | c | c | } \hline \text { Goods } & \mathrm { A } & \mathrm { B } \\\hline \mathrm { X } & 3 & 9 \\\hline \mathrm { Y } & 4 & 2 \\\hline\end{array}$ (numbers indicate hours of labor per unit of output) -Refer to the table above.If countries were to trade along the lines of absolute advantage

Answer the question(s) below based on the information in the following table,where the numbers represent the number of labor hours it will take to produce a unit of the given good. $\begin{array} { | c | c | c | } \hline & \text { Spain } & \text { France } \\\hline \text { Grapes } & 3 & 9 \\\hline \text { Textiles } & 1 & 2 \\\hline\end{array}$ -Refer to the table above.Spain has comparative advantage in

Answer the question(s) below based on the information in the following table Country $\begin{array} { | c | c | c | } \hline \text { Goods } & \mathrm { A } & \mathrm { B } \\\hline \mathrm { X } & 3 & 9 \\\hline \mathrm { Y } & 4 & 2 \\\hline\end{array}$ (numbers indicate hours of labor per unit of output) -Refer to the table above.If countries were to trade along the lines of comparative advantage

A country gains more from international trade the more its terms of trade differ from its autarky price.

Explain how trade will tend to emerge along the lines of comparative advantage if markets are allowed to work freely.