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1. Assume we are in the two country Ricardian framework. The productivity in each of the two countries (Called Alpha and Beta) under consideration can be filled in the following table. Country Sector...

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1. Assume we are in the two country Ricardian framework. The productivity in each of the two countries (Called Alpha and Beta) under consideration can be filled in the following table. Country Sector Alpha Beta Cloth d5 d6 Wine d7 d8 The values for the table come from the 5th to 8th digits of your student ID.1 If any of those digits are 0 please replace the value with 12. Given your unique example, answer the following questions: (a) What is the pattern of absolute advantage in Alpha and Beta? Briefly explain. (b) What is the pattern of comparative advantage in Alpha and Beta? Briefly explain. (c) What would be the pattern of trade between Alpha and Beta? Briefly explain how you know that. [15] 2. The Heckscher-Ohlin (H-O) model gives insight for understanding how trade might impact factor incomes. Answer this question under the H-O assumptions. Consider a very labour abundant country and a very capital abundant country that are initially closed to trade. If the two countries opened trade how would labourers, capital owners and consumers be affected in both countries? Briefly explain making sure to cite any relevant H-O theorem(s). [20] 3. Give a brief summary of the key points from any TWO of the Data Focus items. Including added insights you may have on each item is encouraged. 2 [20] 4. The following partial equilibrium diagram illustrates the (autarky) markets for bicycles in two countries (Gamma and Delta). Answer the following questions:2 (a) Using one or more diagrams show all the changes you would expect to result from opening trade between them. Label your diagram(s) fully and be sure to consider all changes that can be shown on the diagram(s). (b) If the assumptions of the H-O model hold and the bicycle sector is relatively labour intensive which country in this example is labour abundant and which is capital abundant. 1 I was going to use the last 4 digits (digits 6–9) of your student numbers but all of you, with only one exception, have a zero as the very last digit. 2Feel free to redraw this diagram using a drawing package or include scanned diagrams in the document. Your explanations must be submitted in text (Word or PDF) format. 3 (c) Although you can’t show it in your diagram, also note what you would expect to happen to factor incomes ( W R ) in the two countries. (d) Starting from your free-trade situation (a new diagram is recommended) show the impacts of an import quota being imposed. (Who would have to impose it?) Assume that the quota rights are allocated as follows: If your family name starts in the letters • A-H: assume that the government gives the quota rights to importers, • I–N: assume that the government gives the quota rights to exporters, • O–Z: assume that the government auctions the quota rights.. For all parts list and explain all your results briefly. [30] 5. Briefly explain the key arguments you have learned about the source of gains from trade liberalization and what determines the size of welfare benefits from trade for individual countries. Also comment on the extent that trade agreements promote trade liberalization.
Answered Same Day Jun 05, 2021

Solution

Komalavalli answered on Jun 11 2021
123 Votes
5
Q1.
    
Secto
    Country
    
    Alpha
    Beta
    Cloth
    1
    7
    Wine
    4
    7
a) Country Alpha has absolute advantage in producing wine (4) Beta has same absolute advantage (7) in producing both goods cloth and wine.
) Opportunity cost (OC)
    
Secto
    Country
    
    Alpha
    Beta
    OC of producing Cloth
    4
    1
    OC of producing Wine
    0.25
    1
Country Alpha has low opportunity cost in producing wine in terms of cloth , therefore Alpha has comparative advantage in producing wine. Country beta has low opportunity cost in producing cloth in terms of wine, so country beta has comparative advantage in producing cloth.
c) Country Alpha will export wine to beta and import cloth from beta, while country Beta will export cloth to alpha and import wine from alpha. Both countries export the good that has high comparative advantage (low opportunity cost) .
2) Extension H-O theorem is Stolper-Samuelson Theorem which indicates the relationship between change in output price and change in factor price such as rent and wage. The theorem states that if there are 2 countries A and B. let us assume that Country A is capital abundant and producing capital intensive good laptop and Country B is labour abundant and producing labour intensive good cloth. When both countries open up their trade, the rent of capital will increase and wage of labour will decrease in country A, because this country has abundant resource of capital. The rent of capital will decrease and wage of labour will increase in country B. From trade capital owners in country A would be benefited while labours in Country B would be benefited.
3) Let us consider the data from question 1 country and assume that cloth producing industry is labour intensive while wine producing industry is capital intensive. Consider that country Alpha has abundant resource of...
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