AEM_ECON_2300_PS1_Spring2009

AEM_ECON_2300_PS1_Spring2009 - International Trade and...

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International Trade and Finance Professor David R. Lee AEM/ECON 2300 Spring 2009 Problem Set #1 Due Thursday, February 5, 2009. Please print and perform your work in the spaces provided below; attach extra sheets if necessary. Question 1 Assume we have a two-country, two-good world, in which labor is the only (and immobile) input in production. Table 1, below, outlines the labor hours required for one unit of output in countries A and B. Table 1. Labor Hours per unit output A B Soybeans 6 1 Textiles 2 4 a. Under autarky, what is the relative price of soybeans in terms of textiles for Country A ? b. Under autarky, what is the relative price of textiles in terms of soybeans for Country B ? c. Which country has an absolute advantage in soybean production? Very briefly justify your answer. d. Which country has an absolute advantage in textile production? Very briefly justify your answer. e. Which country has a comparative advantage in soybean production? f. Which country has a comparative advantage in textile production?
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Question 2 Again assume we have a two-country, two-good world, in which labor is the only (and immobile) input in production. Table 2, below, outlines production per labor hour for countries A and B.
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