{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

econ 353-ps1questions - Department of Economics ‘ Econ...

Info icon This preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
Image of page 1

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Department of Economics ‘ Econ 353/ Introduction to International Economics I Instructor: Elif Akbostanc1 P1nar Kaynak Plnar Demir Problem Set 1 (Chapter 2, 3, 4) PART 1: TRUE/ FALSE 1. 2. , Mercantilist system perceived the nation’s productive capacity as the main indicator of a nation’s wealth (T/F) D. Hume argued that trade surplus of a country will result 1n a decline in wages and prices, which will ultimately cause the trade surplus to expand. (T/F) . According to A. Smith, whenever the relative labor requirements differ between two commodities, a basis for trade exists. (T/F) A. Smith has stated that trade would be mutually beneficial and zero-sum game if both governments adopt policies favoring bullionism. (T/F) . David Hume argued that productivity gains will be generated through division of labor. (T/F) External mobility of the factors of production and full employment are the two assumptions of the Ricardian Model. (T/F) According to Ricardo, whenever the relative labor requirements differ between two commodities, there exists comparative advantage. (T/F) . Whenever there’s a basis for trade, it automatically leads a country toward complete specialization in the goods which the country has comparative advantage. (T/F) With trade, prices are no longer determined solely by the labor theory of value but by an equilibrium involving the two trading countries. (T/F) 10. Under autarky the CPF has constant returns to scale where PPF has increasing returns to L scale. (T/F) PART 2: FILL IN THE BLANKS 1. David Hume ......................... (supported/challanged) the Mercantilist view. According to his ...................... mechanism, accumulation of gold through a trade ................ (surplus/deficit), .................(would/would not) lead to increase in the money supply and hence an ................ (increase/decrease) in prices and wages. This would ....... ~ .......... (increase/decrease) the competitiveness of the country. At the same time, loss of gold 1n the deficit country would ................. (increase/decrease) its money supply and hence ................... (increase/decrease) prices and wages which leads to ................... (increase/decrease) of its competitiveness as a result. According to Smith, a wealth of nation is determined by its ............................... (specie holdings/productive capacity). ........................ is the catalyst and ............... and the ............. is the automatic regulation mechanism in the economy. He emphasized ................. will be the best to provide the necessary condition for increasing wealth. Countries should specialize in commodities in which they have a(n) ............... (absolute/comparative) advantage. States must produce commodities, which require ........ (less/more) labor per unit in their country than requires. PART 3: PROBLEMS l. L/Q Computers France 100 days Germany 60 days a) Calculate the autarky price of computers and autarky price of wheat. b) Which country has comparative advantage in computer production? Which country has comparative advantage in wheat? If there is a basis for trade explain why. What is the pattern of trade? c) If the terms of trade are 1C:22W, how many days of labor does France save per unit of its import good by engaging in trade? How many does Germany save peri unit of its import good? d) If the TOT is 1C224W, how many days of labor do France and Germany save per unit of their respective import good? e) If the TOT is 1C126W, how many days of labor do France and Germany save per unit of their respective import good? ' i) Given 120 days of labor and TOT: 1C:24W, show production and consumption possibilities frontier for each country before and after trade. 2. Consider a Ricardian world madeof two countries, Ivory Coast (I) and Morocco (M), two goods, Laptops (L) and Bananas (B) and one production factor, Labor (L). Morocco has a population of 70 workers; Ivory Coast has a population of 159workers. The labor requirements are: ' - Laptop Ivory Coast 2 m—— a) Does Morocco have an absolute advantage in any production? b) Which country has a comparative advantage in which production? Why? c) Write the production function for each good in each country. , d) Write the resource constraints (using unit labor requirements) for both countries. e) What are autarky price ratios? t) Morocco has a population of 70 workers. Draw the production possibilities fiontier of Morocco labeling carefully the axes and the intercepts. What is the meaning of the slope of PPF? - I g) Ivory Coast has a population of 150 workers. Draw the PPF of Ivory Coast labeling carefully the axes and the intercepts. 7 ' i A h) M and Iwill open up to trade, what range of relative prices you will emerge from free trade (upper and lower limits)? ' ' i) Supposing that the free trade and complete specialization occurs, draw the new CPFs of both countries. ‘ 3. After the Third World War, there remained just three countries in the world: The United Kingdom, Zululand and Turkey. The UK and Zululand are very close trade . partners and impose s strict trade embargo on Turkey. The following table shows the number of days of labor input required to obtain on unit of output for each commodity concerning Zululand and the UK. Startucks 8 6 Milkshake a) Wage rate in the UK is 93 8 per day and wage rate in the Zululand is Z 20 per day, and the exchange rate is Z 2/£1. Based on these facts, determine the export and import pattern between these two countries. b) Provided that the wage structure remains the same in both countries, calculate the lower and upper bounds of exchange rate (in Z/£ ) which is consistent with two way trade between these countries. c) Keeping the wage rate in Zululand Z 20 and the exchange rate at 22/ £1, calculate the upper and lower limits ofUK wages in pounds that are consistent with two way trade between these countries. (I) The economists in Zululand argued that the transportation cost of 0.75 days of labor per unit of output which occurs during the trade transactions with the UK should be taken into account. In that condition, what will be the new patterns of trade? Suddenly an amulet of charm which maintains the balance of the world is stolen and an earthquake occurs. Right after the disaster, England and Zululand decided to end the embargo on Turkey. The following table shows the number of output per worker in each country in milkshake and software. Q/L Zululand Milkshake e) If the TOT internationally is 4M:SS, then what will be the trade pattern? Determinel each country’s export and import commodities. DISCUSSION 1. Although the propositions of the mercantilists have been refuted, why mercantilism is still alive today? 2. Compare and contrast the ideas lying behind Mcrcantilism and theory of Adam Smith and theory of David Ricardo. Explain price-specie—flow mechanism by using price elasticity. 4. “Closer the terms of trade are to a, country’s internal autarky price ratio, smaller the gain for that country from international trade”: D1 scuss. E” ...
View Full Document

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern