examfall2005andkey - Final exam Key ARE 201, Fall 2005...

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Final exam Key ARE201 ,Fa l l2005 Answer all questions. Write your answer question 1 and 2 on the exam (ratherthanonaseparatesheet) . Question 1. (20 points) Fill in the blanks. The following table gives the number of units of labor required to produce one ipod or one milkshake in three countries, in a Ricardian (two commodity) world commodity \ country Vietnam Paraguay Chad ipod 1 0.5 1 milkshake 1 2 4 units of labor required to produce commodity Assume that in equilibrium both commodities are consumed. There is free trade. a) (Fill in the blank with the commodity name) Vietnam has a compara- tive advantage in milkshake ,compared to Paraguay. Vietnam has a comparative advantage in milkshake compared to Chad. Paraguay has a comparative advantage in ipod com- pared to Vietnam. Paraguay has a comparative advantage in neither good compared to Chad. b) For what (if any) pattern(s) of production are the wages in Vietnam and Paraguay possibly equal? [Vietnam specialized in milkshake, Paraguay and Chad both specialized in ipods.] c) For the pattern(s) of production in part (b), are the wages necessarily equal? [Yes/No] [NO]
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the equilibrium relative price of milkshakes, p M p I =1 . In this case, Chad is specialized in ipod and Vietnam is either incompletely specialized, or in the "knife-edge case" completely specialized in milkshakes. If you gave me the answer "both countries completely specialized in the good for which they have comparative advantage, you got 50% credit (2 points).] e) For what (if any) pattern(s) of production are the wages in Paraguay and Chad possibly equal? [No pattern of production.} Question 2. (15 points) There are two commodities, food and cloth. Food is the numeraire. The relative world price of cloth is
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This note was uploaded on 08/01/2008 for the course ARE 201 taught by Professor Karp during the Fall '07 term at University of California, Berkeley.

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examfall2005andkey - Final exam Key ARE 201, Fall 2005...

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