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Homework 1

Homework 1 - Homework 1 Name Purdue ID 1 Part 1 Questions...

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Homework 1 Name Purdue ID 1

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Part 1. Questions that you do not need to turn in. Answer the following questions. You do not need to turn them in. Study Guide, Chapter 1, problems 1 ~ 5. Study Guide, Chapter 2, problems 1 ~ 8. (Problem 1 includes 1a through 1i, etc.) 2
Part 2 I. Consider the Ricardian model. Given the following information: MPL MPL Labor Endowments Cloth Computers Mexico 0.1 0.04 50 Singapore 1 2.5 20 2 points each. 16 points total. (1) Which country has an absolute advantage in cloth? Why? (2) Which country has a comparative advantage in computers? Why? (3) What is the real wage of Mexican workers in terms of computers before trade? (4). If these two countries trade, then what is the lower limit of the free-trade equilibrium price of computers in terms of cloth? What is the upper limit? Why? 3

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(5) What does Mexico export under free trade? Why? (6) Suppose the free trade relative price of computers to cloth is 1.2 (i.e. P computers T /P cloth T = 1.2). What is real wage of Mexican workers in terms of computers under free trade?
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