E342Practice - Economic 342 Practice Examination...

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Economic 342 Practice Examination Instructions : Attempt all questions. The exam will be graded out of a total of 65 marks. 1. (6 marks) Ricardian Trade model . True or False? Explain in a sentence – no diagram is needed. (a) Free trade is beneficial because it rotates a country’s production possibility (PPF) outward. (b) A country will not gain from trade if relative goods prices under free trade are the same as the relative prices under autarky (no trade). 2. Ricardian Trade Model . The unit labour requirements for Home and Foreign are: Beer Trucks Labour Supply Home 9 3 90 Foreign 2 1 40 (a) (6 marks) Draw the world relative supply curve for beer with the relative price of beer in terms of trucks on the vertical axis and relative quantity of beer on the horizontal axis. Be sure to label all of the relevant points on both axes giving numerical values. (b) (2 marks) Add a world relative demand curve for beer to your diagram that indicates that both countries are specialized in the good in which they have a comparative advantage.
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E342Practice - Economic 342 Practice Examination...

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