Homework #2

Homework#2 - Homework 2(10 points Due in discussion the week of February 16th-20th No late HWs will be accepted 1 Suppose the comparative-cost

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Homework 2 (10 points) Due in discussion the week of February 16 th -20 th ; No late HWs will be accepted 1. Suppose the comparative-cost ratios of two products, roses and tulips, in Holland and England are: Holland: 1 rose = 6 tulips, and England: 2 roses = 4 tulips. In what product should each country specialize? Why? How may international trade allow each country to consume more than it is able to produce? (Hint: With trade, what would price ratio between the two goods become?) 2 points Holland should specialize in tulips and England should specialize in roses. Holland specializing in tulips would only give up 1 rose for every 6 tulips. England specializing in roses would give up 4 tulips for every 2 roses. By trading 6 tulips, Holland must get more that 1 rose by trading or it is not worth trading. England must get more than 2 tulips for every 1 rose traded. It is important for each country to trade for a better price than they can produce. The actual exchange ratio depends on supply and demand. 2.
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This note was uploaded on 06/26/2009 for the course ECON 203 taught by Professor Al-sabea during the Spring '05 term at USC.

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Homework#2 - Homework 2(10 points Due in discussion the week of February 16th-20th No late HWs will be accepted 1 Suppose the comparative-cost

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