Help please this is an international economics paper.

ECON 325

Problem Set 1

1. Consider the following hypothetical data for two hypothetical countries, Tyrol and Trentino. Figures are in tons of output per unit of input. Assume constant opportunity costs.

Apples Potatoes

Tyrol 1 10

Trentino 5 20

A. Which country has an absolute advantage, if any, in which product?

B. Which country has a comparative advantage, if any, in which product? Which country will export which good?

C. If Trentino's apple output per unit of input were 2, instead of 5, what would you answers be to all of the above questions?

D. What is the price ratio before trade in Trentino and in Tyrol?

E. Can you determine the range within which the equilibrium international price ratio will settle after trade is opened up? Explain?

F. Can you determine precisely the equilibrium international price ratio after trade is opened up?

G. Will each country specialize completely or partially in the production of its export good?

H. Pick a feasible international price ratio of apples relative to potatoes (PA/PP) of 3. Quantify the gains from trade for each country.

I. How will the result be different if the relative price is 1?

2. Thanks to Paul Cantor here is a canticle to comparative advantage:

Nancy Nible's a marvelous woman

I've often heard it said

In the course of a day she can sew 20 coats

Or bake 50 loaves of bread.

Fred B. Fancy's not quite like Nancy

Cause part of him's made of lead

His day's output is 8 coats, no more,

Or 20 loaves of bread.

Last, but not east, is Earl E. Rise

Who beats the sun out of bed

He'll sew one dozen coats or bake 48 loaves

Before the day is dead.

Assume constant costs. You may think of NN, FF, and EE as personifications of Namibia, Finland, and Egypt, since the principles illustrated by the problem carry over from individuals to nations. Explain your answers.

A. Who has the comparative advantage in making bread?

B. Who is the low-cost producer of sewn coats?

C. Can NN benefit from specializing and engaging in trade with FF?

D. Can NN benefit from specializing and engaging in trade with EE?

E. Draw in one figure the PPCs between bred and coats for FF, NN, and EE.

G. Assume that before specializing NN produced 16 coats. That means she produced how many loaves of bread?

H. Assume that before they began trading with one another, FF produced 6 coats, EE 5 coats, and NN 16 coats. Prove with a numerical example that by specializing and engaging in trade they can all be made better off (Hint: Try with a free-trade price ratio of 3 loaves of bread to 1 coat).

3. The following table represents increasing cost production possibilities for the US and the rest of the world (ROW):

US Production ROW Production

Possibilities Curve Possibilities Curve

Wheat Cloth Wheat Cloth

0 120 0 200

40 116 40 192

80 100 80 180

120 76 120 160

160 40 160 120

200 0 180 0

Using indifference curves and production possibilities curves, determine

A. equilibrium relative prices at which production and consumption take place before trade, for both the US and ROW.

B. What is the range of prices within which trade would be mutually beneficial for both the US and ROW?

C. After specializing in production, determine the points at which consumption takes place if the US and ROW exchange 20 bushels of wheat for 20 yards of cloth, i.e. international relative price =1.

E. Use supply and demand curves to examine the cloth market before and after trade in both the US and ROW.

4. A. State the Ricardian comparative advantage theory.

B. Critically discuss the Ricardian theory.