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Using the information provided in Problem 2 regarding Home, in which good does Foreign have a comparative advantage and why? Answer: Foreign has a comparative advantage in producing televisions because it has a lower opportunity cost than Home in the production of televisions. Add the indifference curve for each country to the figures in Problems 2 and 3. Label the production possibilities frontier PPF , indifference curve U1 , and the no-trade equilibrium consumption and production for each country.

Answer: See following figures. In what good will each country specialize? Briefly explain why. Answer: Home would specialize in cars, export cars, and import televisions, whereas the Foreign country would specialize in televisions, export televisions, and import cars.

The reason is because Home has a comparative advantage in. So Home will export cars and earn a profit. So Foreign will specialize in TV.

Graph the new world price line for each country in the figures in Problem 4 and add a new indifference curve U2 for each country in the trade equilibrium. Answer: See the following figures. TV, QTV units. Label the exports and imports for each country.

How does the amount of Home exports compare with Foreign imports? Answer: See graph in part b. The amount of Home car exports is equal to the amount of Foreign car imports. In addition, Home imports of televisions equal Foreign exports of televisions. This is balanced trade, which is an essential feature of the Ricardian model.

Does each country gain from trade? Briefly explain why or why not. Answer: Both Home and Foreign benefit from trade relative to their no-trade consumption because they are able to consume at higher indifference curves. Answer the following question using the information given by the accompanying table. Home Country. Which country has an absolute advantage in the production of bicycles? Which country has an absolute advantage in the production of snowboards? Answer: Home has an absolute advantage in the production of bicycles because it is able to produce more bicycles in an hour than Foreign.

What is the opportunity cost of bicycles in terms of snowboards at Home? What is the opportunity cost of bicycles in terms of snowboards in Foreign? Answer: Foreign has an absolute advantage in the production of snowboards because it is able to produce more snowboards in an hour than Home. Which product will Home export, and which product does Foreign export? Home B. What is the marginal product of labor for TVs and cars in the Home country? What is the no-trade relative price of TVs at Home?

What is the marginal product of labor for TVs and cars in the Foreign country? What is the no-trade relative price of TVs in Foreign? Which good will each country export? Answer: Home will export cars and Foreign will export televisions because Home has a comparative advantage in cars whereas Foreign has a comparative advantage in televisions. Each country will specialize in the goods with lower.

So Foreign will specialize in televisions, export televisions, but import cars. So Home will specialize in cars, export cars, and import televisions. In the trade equilibrium, what is the real wage at Home in terms of cars and in terms of TVs?

How do these values compare with the real wage in terms of either good in the no-trade equilibrium? Answer: Workers at Home are paid in terms of cars because Home exports cars. Home is better off with trade because its real wage in terms of televisions has increased.

MPLC 5 1? Answer: Foreign workers are paid in terms of televisions because Foreign exports televisions. Foreign gains in terms of cars with trade. In the trade equilibrium, do Foreign workers earn more or less than those at Home, measured in terms of their ability to purchase goods? Explain why. Answer: At the trade equilibrium, real wages for Foreign workers are either 2 cars or 2 televisions, whereas real wages for Home workers are either 3 televisions or 3 cars.

Foreign workers earn less than workers at Home in terms of cars because Home has an absolute advantage in the production of cars. Home workers also earn more than Foreign workers in terms of televisions. Under the Ricaridan model, wage differences are determined by absolute advantage or MPL productivity. Why do some low-wage countries, such as China, pose a threat to manufacturers in industrial countries, such as the United States, whereas other low-wage countries, such as Haiti, do not?

Answer: To engage in international trade, a country must have a minimal threshold of productivity. Countries such as China have the productivity necessary to compete successfully, but Haiti does not. China can enter the world market because it beats other industrial countries with a lower price. So the lower price in China comes from both a low wage rate and. What is the total value of exports from Europe and the Americas, and what percentage of the world total is this?

What is the total value of exports from Asia, and what percentage of the world total is this? What is the total value of exports from the Middle East and the Commonwealth of Independent States,13 and what percentage of the world total is this? What is the total value of exports from Africa, and what percentage of the world total is this? How do your answers to b through h compare with the shares of worldwide trade shown in Table ?

Answer: The shares computed in b through h are quite similar to Table Read this speech and answer the following questions:. List three ways in which international trade today does not differ from the trade that occurred before World War I. List three ways in which international trade today does differ from the trade that occurred before World War I. Read Now. Go explore.