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PS01-Ricardo - Econ 441 Problem Set 1 Alan Deardorff...

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Econ 441 Alan Deardorff Problem Set 1 Ricardian Model Page 1 of 2 Problem Set 1 The Ricardian Model 1. Which of the following characterize the Ricardian Model? a. Perfect mobility of factors across industries b. Perfect mobility of factors across countries c. Constant returns to scale d. The law of diminishing returns e. Identical technologies across industries f. Identical technologies across countries g. Cournot competition h. Perfect competition 2. Suppose that a small open economy has 200 workers and that its technology requires 1 worker-hour per unit of food and 3 worker-hours per unit of cloth. In autarky, it employs 100 workers in each of the two industries. With free trade, it faces world prices of $10 per unit of food and $20 per unit of cloth. a. Suppose that in autarky, workers in both industries are paid $8 per hour. What are the autarky prices of food and cloth? b. When the country opens to free trade, under the normal assumptions of the Ricardian model, what will it produce, import, and export? From the information given, can you determine the quantities of any of these?
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