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0304midterm1 - Theory of International Trade(ECON0301 Dr...

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1 Theory of International Trade (ECON0301) Dr. Stephen Chiu First Midterm Time allowed: 50 minutes Please answer ALL questions. The total score is 95. Please budget your time wisely. Name: University Number: Tutorial Group:
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2 1. Country H and Country F both produce bread and cloth with a single input, labor, with constant returns to scale technology. The unit labor requirement for each good in each country is as follows: H F Bread 1/4 units of labor/loaf 2 units of labor/loaf Cloth 1/2 units of labor/sq yd 1 units of labor/sq yd Each country has 100 units of labor available for use in production. a. Suppose trade is not allowed between countries H and F, what is the autarkic price of cloth in terms of bread in country H (i.e., p C / p B )? In country F (i.e., * * / B C p p )? (7 points) b. Which country has an absolute advantage in bread? In cloth? (7 points) c. If trade is allowed, what is the pattern of trade? (7 points)
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3 d. What is the free-trade price of cloth in terms of bread? (7 points) e. What can be said about the wage at Country H relative to the wage at country F, i.e., w / w * ? (9 points)
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