Practice problem set _1 econ178

Practice problem set _1 econ178 - Econ 178: International...

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Econ 178: International Trade Winter 2009 Practice Problem Set #1 1. What were the basis for trade and the pattern of trade according to Adam Smith? In what way was Ricardo’s law of comparative advantage superior to Smith’s theory? According to Smith’s theory, can a nation that is less efficient than another nation in the production of all commodities export anything to the second nation? How does Ricardian trade model answer the same question? 2. “Developed countries have nothing to gain by trading with developing countries.” True or false? Explain. 3. Consider the following data on the factor endowments of two countries, A and B: A B Labor force (in millions of workers) 45 20 Capital Stock (in thousands of machines) 15 10 (a) Which country is relatively capital abundant? (b) Which country is relatively labor abundant? (c) Supposing that production of cars is capital intensive relative to production of food, which country will have comparative advantage in the production of
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Practice problem set _1 econ178 - Econ 178: International...

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