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3. The output per laborer per day in the production of steel and tin for Russia and China are given in the table below. Output per Labor-Day Russia CHINA

STEEL 10 3

TIN 5 6

e) How is the slope of a production possibility frontier related to the opportunity cost of the good on the horizontal axis? (See your answers to parts (a) and (b) of this question.)

3 f) What does a straight-line production possibility frontier imply? g) Which country will specialize in and export Tin?

h) What is a possible terms of trade at which both nations will be willing to trade? (See your answer to 1.g.)

i) Plot a terms of trade line at which both nations will be willing to trade on your production possibility frontiers of part (c), starting the terms of trade line from a point of complete specialization for each nation

. j) How does your diagram from part (i) demonstrate how nations gain from trade?

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Related questions

Specialization in international trade- based on Ricardo’s Theory:

Given that two nations have equal resources and both nations agree to specialize in the production of a product that is most efficient, determine:

a)Specialization between the two nations (which nation specializes in which product?)

b)The range of terms of trade (trade negotiation terms)

c)The best of terms of trade (democratic distribution of trade benefit)

d)The net benefit for each country (after specialization)

e)Discuss the limitations of production and export based on such assumption in the current global economy

Use the following data to answer the above questions.

Before specialization

Products/Country

Japan

US

Auto

10

20

Plane

5

20

4. (Part A) Suppose the USA and China are considering whether to engage in trade. Here are the production possibilities of the two countries before trade occurs:

Table 1. Production of Apparel or Chemicals in the USA and China.

The Opportunity Costs of producing one product or the other are displayed.

1000’s of Tons of

Apparel Units Chemicals

Nation Produced or Produced

USA 50 or 150

China 30 or 60

Which nation has the comparative advantage in producing Apparel? Which nation has the comparative advantage in producing chemicals? Explain how you arrived at these conclusions.

Explain the Law of Comparative Advantage, and its application to trading relationships between nations. In the example above, if the two nations decide to engage in mutually beneficial trade, which nation should specialize in producing Apparel and which nation should specialize in producing Chemicals, and Why?

Suppose a trade proposal is made to exchange 1 thousand units of apparel for 2.5 tons of chemicals. Would these terms of trade (1 Apparel : 2.5 Chemicals ) be acceptable to, and mutually beneficial for, both the USA and China as trading partners? Why or why not?

What are the “payoffs” from open trade? What are some of the limitations associated with open trade?

4. (Part B) Suppose the USA and EU are trading, and currencies must be exchanged as goods/services are imported and exported between the two regions. The $USD is the currency of the USA, and the €Euro is the currency of the EU.

a. Are the following statements correct or incorrect? Why or why not?

“If the USA is exporting its goods to the EU, these exports from the USA to the EU create a demand for €Euros in the Currency Exchange Market for €Euros.”

“If the USA is importing goods from the EU, these imports to the USA from the EU create a supply of $USD in the Currency Exchange Market for $USD’s.”

“If the EU is importing goods from the USA, these imports to the EU from the USA create a demand for $USD in the Currency Exchange Market for $USD’s.”

Throughout your answer to any of these other questions, use graphs as needed (all axes and functions completely labeled) to accompany your written analyses.

1. Which of the following is true of the customs union?

a. in a customs union, tariff and non-tariff barriers between the member nations are absent.

b. in a customs union, a fixed exchange rate regime is implemented among the member nations.

c. in a customs union, member nations agree to transfer economic sovereignty to a supranational authority.

d. in a customs union, the member nations do not impose any external trade restrictions against the nonmembers.

 

2. When the national, taxation, social, and fiscal policies of two or more nations are administered by a supranational institution, the nations are said to be a part of:

a. a common market

b. a free-trade area

c. an economic union

d. a customs union

 

3. The trade creation effect under a customs union is stronger if:

a. the production effect increases

b. the trade diversion effect rises

c. the inefficient domestic producers continue to operate

d. The consumption effect reduces

 

4. Who among the following is a loser from free trade of the U.S. with Mexico?

a. Workers in import-competing industries in the U.S

b. Workers in labor-intensive businesses relocated from the U.S. to Mexico

c. The consumer in the U.S.

d. Workers in industries that use an imported component in its production process in the U.S.

 

5. A major hindrance to the growth processes of developing nations is that

a. they mostly adopt export-promoting industrialization policies

b. they have a dearth of low-wage workers.

c. they lack adequate institutions

d. they are not centrally planned economies

 

6. One of the functions of the World Bank is to

a. stipulates measures that will improve the balance of payments of a member nation

b. advances loans in foreign currencies to a member nation facing currency deficits

c. provides grants for specific development projects of a member nation.

d. review the trade policies of member nations and make necessary amendments

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