ECON340 Study Guide - Midterm Guide: Factor Endowment, Absolute Advantage, Comparative Advantage

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harlequinraven529

18 Apr 2018

School

University of Delaware

Department

Economics

Course

ECON340

Professor

David Black

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Document Summary

Chapter 2 -- the basic theory using demand and supply. Demand and supply conditions differ between countries so prices differ between countries if there is no international trade. Trade begins as someone conducts arbitrage to earn profits from the price difference between previously separated markets. A product will be exported from countries where its price was lower without trade to countries where its price was higher. Move from no trade to a free trade equilibrium changes the product price from its no trade value to the free trade equilibrium international price or world price. Price change in each country results in changes in quantities consumed and produced. In the country importing the product, trade raises the quantity consumed and lowers the quantity produced of that product. In the exporting country, trade raises the quantity produced and lowers the quantity consumed of the product. If we use the one-dollar, one-vote metric, then both do.

Related Questions

Consider a world with two countries, A and B, in which consumers are obsessed with the consumption of YokiPooki, which is considered to be the latest and greatest in VR entertainment. The two counties are identical: each has an aggregate demand for YokiPooki given by 1000p, and two firms producing this service. YokiPooki is produced at a constant marginal cost of $10 per unit by the firms in country A and at a constant marginal cost of $20 per unit by the firms in country B. The firms in each country are fully owned by consumers in that country. Initially, there is no international trade between countries, so each firm can sell only in its own country. What is the equilibrium quantity of YokiPooki produced by each firm in country A? What is the equilibrium quantity of YokiPooki produced by each firm in country B? After some negotiations, the two countries sign a trade agreement and agree to have YokiPooki bought and sold in a single world market (with a common world price for YookiPooki). What is the equilibrium level of YokiPooki produced by each firm in country A? What is the equilibrium level of YokiPooki produced by each firm in country B? After the law is passed, lobbyists for the firms in country B convince politicians to keep the world market but introduce a tax of $10 per unit on YokiPooki sold by firms from country A, regardless of where their sales take place. What is the equilibrium level of YokiPooki produced by each firm in country A? What is the equilibrium level of YokiPooki produced by each firm in country B?

plumbuffalo108

Consider the following unit labor requirements for two countries, Essos and Westeros, within the context of the Ricardian model of trade, where the two goods are food 1 (F) and horses (H) (you may assume that bushels and horses are equivalent units). Please see attached screenshot for data.

(a) Which country has an absolute advantage in food? In horses? Why?

(b) Which country has the comparative advantage in food? In horses? Why?

(c) Assume that there is autarky, and both goods are produced in each country. What is the relative price of food in terms of horses in each?

(d) Now assume that there is free trade, and the free trade relative price falls exactly between the autarky prices you derived in part. Graph this trading equilibrium in terms of relative supply and relative demand.

(e) Demonstrate, numerically, the gains from trade in Essos and Westeros (hint: rely on trade as an indirect method of production).

(f) Let the price of food, PF = 10 gold coins, and the price of horses, PH = 9 gold coins. Calculate the relative wage of the Westerosi to Essosi.

(g) What do you observe about the relative wage compared to relative productivities? What does this imply? **

turquoisehippopotamus268

Trade Policy.

The demand for cars in Home is q = 30 â P and the supply of cars in Home is q = P. The demand for cars in Foreign is q = 10 â P and the supply of cars in Foreign is q = P.

a) Calculate the autarky equilibrium price and quantity in each country.

b) Who is the importer of cars and who is the exporter?

c) Write the import demand for Home and the export supply for Foreign.

d) Find the equilibrium world price under free trade. What is the amount of cars traded between the two countries?

e) Suppose the country that is the importer imposes a tariff of $2 per unit on car imports. Find the new equilibrium world price under the tariff. What is the amount of cars traded between the two countries now? Show this in a graph with the import demand for Home and the export supply for Foreign.

f) Look at figure 1 for Home and fill in the table below (with letters, no numbers) with the consumer surplus, producer surplus, government revenue and total surplus before and after the tariff.

g) Look at figure 2 for Foreign and fill in the table below ((with letters, no numbers) with the consumer surplus, producer surplus, government revenue and total surplus before and after the tariff.

h) Does Home experience a terms of trade gain or loss as a result of the tariff? Does Foreign experience a terms of trade gain or loss as a result of the tariff?

carminerat489

ECON340 Study Guide - Midterm Guide: Factor Endowment, Absolute Advantage, Comparative Advantage

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