Q1-2.png - Which of the following are true Food Clothes Mr US $20 $60 Mr JP Y80 Y160(i Mr US has an absolute advantage in the production of Food(ii Mr

Q1-2.png - Which of the following are true Food Clothes Mr...

This preview shows page 1 out of 1 page.

Image of page 1

Unformatted text preview: Which of the following are true? Food Clothes Mr. US $20 $60 Mr. JP Y80 Y160 (i) Mr. US has an absolute advantage in the production of Food. (ii) Mr. JP has a comparative advantage in the production of Clothes. (iii) A terms of trade ratio of 2 units of Clothes: 3 units of Food would make the trade between the two countries mutually beneficial. (a) (i) and (ii) (b) (ii) ** (c) (ii) and (iii) (d) All of the above ANSWER and DISCUSSIONS: (1) Without knowing the exchange rate, it is impossible to tell who has absolute advantage in Food (2) To Mr. US, 1 Food = 1/3 Clothes, 1 Clothes = 3 Food. To Mr. JP, 1 Food = 1/2 Clothes, 1 Clothes = 2 Food, so Mr. JP has comparative advantage in Clothes. (3) The range of terms of trade that benefits both economy is 3 Food > 1 Clothes > 2 Food, the trade ratio is out of this range and therefore could not benefit both parties. 2. Continue with the previous question. Suppose they cooperate to produce a joint output and trade with the world market and world price of 1 unit of Food is 0.4 units of Clothes. If Mr. US has $180 and Mr. JP has Y320 to spend on production, what are their total output of Food and Clothes? (a) 0 unit of Food and 5 units of Clothes (b) 9 units of Food and 2 units of Clothes ** (c) 13 units of Food and 0 unit of Clothes (d) 10 units of Food and 3 units of Clothes ANSWER and DISCUSSIONS: World Price: 1 unit of Food is 0.4 unit of Clothes Mr. US: 1 Food = 0.33 Clothes = He has comparative advantage in Food compared to the world. Mr. JP: 1 Food = 0.5 Clothes = He has comparative advantage in Clothes compared to the world. Mr. US focuses on producing Food and Mr. JP focuses on producing Clothes, so 2 units of Food and 9 units of Clothes will be produced....
View Full Document

  • Spring '14

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern

Ask Expert Tutors You can ask 0 bonus questions You can ask 0 questions (0 expire soon) You can ask 0 questions (will expire )
Answers in as fast as 15 minutes