Chap003EndofChapterproblems

Chap003EndofChapterproblems - Chapter 03 - The Classical...

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

View Full Document Right Arrow Icon
Chapter 03 - The Classical World of David Ricardo and Comparative Advantage CHAPTER 3 THE CLASSICAL WORLD OF DAVID RICARDO AND COMPARATIVE ADVANTAGE Answers to End-of-Chapter Questions and Problems 1. (a) The autarky price ratios: France: 1 computer:25 wheat, or 1 wheat:1/25 computer Germany: 1 computer:20 wheat, or 1 wheat:1/20 computer (b) France has a comparative advantage in wheat and Germany in computers. France’s disadvantage is relatively smaller in wheat than in computers, i.e., 4/3 < 100/60; Germany’s advantage is relatively greater in computers than wheat, i.e., 60/100 < 3/4. (c) In autarky in France it takes 25 wheat to buy a computer (or 100 days). If it only takes 22 wheat to import the computer, France will save 12 days (= 3 x 4) of labor/computer. In Germany in autarky it takes 1/20 of a computer (3 days) to acquire one wheat. If with trade it only takes 1/22 of a computer (2.73 days)/wheat, Germany saves 0.27 days/wheat import. (d) France saves 4 days of labor/computer; Germany saves 0.5 days of labor/wheat. (e) As the international terms of trade move closer to those of France in autarky, the benefits accruing to Germany increase (e.g., a saving of 0.5 days/wheat instead of 0.28 days), and the benefits accruing to France decrease (e.g., a saving of only 4 days/computer instead of 12 days). 2. (a) In the United Kingdom one day of labor can produce of a unit of textiles and 1/6 of a unit of automobiles. In the United States, one day of labor can produce ½ of a unit of textiles and 1/5 of a unit of automobiles. 3-1
Background image of page 1

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

View Full DocumentRight Arrow Icon
Chapter 03 - The Classical World of David Ricardo and Comparative Advantage 3. In autarky, the production (and consumption) of textiles and autos will utilize all the available 1,000 days of labor. Thus, with T = number of units of textiles produced and A = number of autos produced, 1,000 = (2 days/unit)T + (5 days/unit)A. The consumption requirement is that 10 units of textiles be consumed for every unit of automobiles. Hence, total textile production is equal to (10) (total auto production), i.e., 10A. Thus, given the available
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 4

Chap003EndofChapterproblems - Chapter 03 - The Classical...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online