Section 01_29_2010

Section 01_29_2010 - Sections 105 and 106 E C O N 181 GSI...

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S ec tion s 105 and 106 - E C ON 181 01 / 29 / 2010 GSI: P e dro Ca s tro 1)Consider a world with two countries, US and Canada, and two goods, apples and oranges. The unit labor requirements in the US are a LA =3 for apples and a LO =2 for oranges and in Canada they are a LA *=1 for apples and a LO *=10 for oranges. Assume the populations have the same size, L=L*=150. Answer the following questions: a)Which country has absolute advantage in the production of each good? b) What is the opportunity cost of apples in terms of oranges in each country? Which country has comparative advantage in the production of each good? c) Suppose there is no trade. Draw the production possibility frontier for the US and Canada. What is the relative price of apples in each country if there is production of both goods in both countries? What sector pays the highest wage in each country if there is no complete specialization? d)Consider a world with free trade. Draw the relative supply curve. For what range of prices: -the US will specialize in apples and Canada in oranges?
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