AEM_230_Problem_Set_1___Fall_2007

AEM_230_Problem_Set_1___Fall_2007 - AEM/ECON 230...

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1 AEM/ECON 230 Prof. David R. Lee International Trade and Finance Fall 2007 Problem Set #1 Question 1 (32 points) In a two-country, two-good world, in which labor is the only (and immobile) input in production, the production cost structure for South Korea and Japan is as outlined in the table below: Output per labor hour Country iPods Televisions South Korea 8 4 Japan 2 2 a. Which country has the absolute advantage in iPod production? Explain. (4 points) b. Which country has the absolute advantage in television production? Explain. (4 points) c. Under autarky, what is the price of an iPod in terms of televisions in South Korea? In Japan? (4 points) d. Under autarky, what is the price of a television in terms of iPods in South Korea? In Japan? (4 points) e. Which country has the comparative advantage in iPod production? (2 points)
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2 f. Which country has the comparative advantage in television production? (2 points) g. Suppose that each country has 200 labor hours available for the production of iPods and televisions. What is the maximum amount of iPods or televisions each country
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