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Suppose we are analyzing Chile and Argentina economies using the Ricardian model. They can both produce bicycles and snowboards. In Chile, MPLb = 4 bicycles while MPLs = 6 snowboards. In Argentina, MPLb =2 bicycles while MPLs = 8 snowboards.

1. Which country has an absolute advantage in bicycle production?

A.Chile

B.Argentina

C.Neither Argentina nor Chile has an absolute advantage.

D.Both Argentina and Chile have an absolute advantage.

2. What is the relative price of snowboards in Argentina before Argentina and Chile trade with each other?

A.2/3

B.3/2

C.4

D.1/4

3. Which country has a comparative advantage in snowboard production?

A.Chile

B.Argentina

C.Neither Argentina nor Chile has a comparative advantage.

D.Both Argentina and Chile have a comparative advantage.

4. International trade will occur between Chile and Argentina as long as the world price of a snowboard is

A.lower than 1/4.

B.higher than 2/3.

C.between 1/4 and 2/3.

D.between 3/2 and 4.

5. Suppose the world price of a bicycle is 2 snowboards, which of the following trading scenarios is consistent with this price?

A.Chile exports 20 bicycles and imports 40 snowboards.

B.Chile exports 20 snowboards and imports 40 bicycles.

C.Argentina exports 20 snowboards and imports 40 bicycles.

D.Argentina exports 20 bicycles and imports 40 snowboards.

6. Suppose the world price of a bicycle is 2 snowboards, what will be a Chilean worker's real wage at the international trade equilibrium?

A.4 bicycles

B.8 snowboards

C.both A and B are correct

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Related questions

1. Use the information in the table below to answer the following questions.

  US Argentina
wheat 300 20
beef 100 20

(a) Does either country have an absolute advantage in the production of wheat or beef? Explain.

(b) What is the opportunity cost of wheat in each country?

(c) What is the opportunity cost of beef in each country?

(d) Analyze comparative advantage and opportunities for trade between the U.S. and Argentina.

2. Suppose that China is labor-abundant country and U.S. is capital-abundant country. iPad is capital-intensive and cloth is labor-intensive. Show that U.S. exports iPad after opening up to trade using Heckscher-Ohlin model.

3. Explain the immiserizing growth using standard trade model.

4. Consider the following Heckscher-Ohlin model: there are two countries, America and China, two goods, high-tech manufactures and low-tech manufactures, and two factors of production, skilled labor and unskilled labor. America is skilled-labor abundant and China is unskilled-labor abundant. High-tech manufactures are skilled-labor intensive and low-tech manufactures are unskilled-labor intensive. What happens to the price of high-tech manufactures relative to the price of low-tech manufactures in America following trade?

 

Production per unit of labor hour UK US Wheat 6 1 Furniture 6 3 1. Which country has absolute advantage in the production of Wheat, of Furniture? 2. According to the absolute advantage theory which country will export Wheat?: 3. According to the comparative advantage theory how much is the opportunity cost of Wheat production in UK and in US? 4. According to the comparative advantage theory how much is the opportunity cost of Furniture production in UK and in US? 5. When trade opens according to the comparative advantage theory which country will export wheat? Why? 6. When trade opens according to the comparative advantage theory which country will export Furniture? Why? 7. At autarky price (before trade) what are the relative prices (domestic cost ratios) in UK? 8. At autarky price (before trade) what are the relative prices (domestic cost ratios) in US? 9. If trade between them take place at terms of trade of 1 W for 2 F why each country benefits from trade? Explain.

Suppose the market for oranges in a small country is closed to international trade. The domestic price is $3 per lb, at which 10,000 lbs are bought and sold in the country, while the world price is $4 per lb. If the country opens up to free trade with the world, the domestic quantity demanded at the world price will be 8,000 lbs, and the domestic quantity supplied at the world price will be 12,000 lbs. 

A. Which of the following statements is true?

a. The country will become an importer of oranges because it has a comparative advantage in the production of oranges

b. The country will become an exporter of oranges because it has a comparative advantage in the production of oranges

c. The country will become an importer of oranges because the world has a comparative advantage in the production of oranges

d. The country will become an exporter of oranges because the world has a comparative advantage in the production of oranges

 

B. At what price (per lb.) will oranges be bought and sold in the country after opening up to trade?

a. $3

b. $4

c. $3.5

 

C. After opening up to trade, the level of exports/imports for the country will be:

a. 8,000 lbs.

b. 12,000 lbs.

c. 10,000 lbs.

d. 4,000 lbs.

 

D. How much (in $) is the net gain from trade for this country in opening up to free trade?

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