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In-country A, one unit of labour can produce 40 toys or 10 computers. In-country B one unit of labour can 200 toys or 20 computers.

(a)Explain which country has an absolute advantage in producing toys.

(b)Explain whether the country should export toys or computers

(c)Suppose Country A trades with Country B at the exchange ratio of 8 toys to a computer. Calculate the gain of Country A per 100 units of exports.

(d)State the range of terms of trade that mutually benefits both countries.

(e)If the cost of trade per unit of computer traded is X toys, find the minimum value of X at which trade will not be mutually beneficial.

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Insha Fatima
Insha FatimaLv10
28 Sep 2019

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Suppose there are only two goods: electronic watches and toys. The cost of producing 1 unit of electronic watches in Hong Kong is 5 units of toys

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(b)Explain if Hong Kong has a comparative advantage in producing watches or toys based on the information provided and your answer in (a).

(c)Suppose the terms of trade is 1 unit of electronic watches can exchange for 6 units of toys. If there are no transport costs and transaction costs, explain which goods will be exported by Hong Kong. And what is Hong Kong's unit gain from exports? Briefly explain.

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A.) What is the production and consumption of China and France without trade?

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1. Who are the winners and who are the losers from "free trade"?

2. Why do economists believe that a tariff is better than an import quota? (Actually, most economists do not like either!)

3. Why is the "infant industry" protectionist argument perhaps valid for some situations?

4. What is one argument for and one argument against NAFTA?

5. Evaluate this statement: "If a country bans an import, smuggling is inevitable. We should welcome smuggling because it increases consumer welfare."

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7. What is dumping? Why is this done?

8. Discuss this statement: "Free traders win the economic arguments, but protectionists (those who favor tariffs) often win the elections."

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