I MID-TERM REVIEW QUESTIONS 1

I MID-TERM REVIEW QUESTIONS 1 - ECONOMICS OF GLOBAL...

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ECONOMICS OF GLOBAL BUSINESS Prof. Srivatsan MID-TERM REVIEW QUESTIONS 1. With reference to the following table assume that the wage rate is $6/hr in the U.S U.K Wheat (bushels/hr) 6 1 Cloth (yds/hr) 3 2 [a] Express P W and P C in the U.S in $ and in the U.K in £ in the absence of trade [b] If the exchange rate is 3$/£ which good will the U.S export and import? [c] What if 1£ = $0.50? [d] What if 1£ = $2.00? [e] What is the range of x-rate over which mutual trade (both nations exporting and importing )will occur? 2. Suppose labor (the only factor of production) cannot move between industries in either country in the short run. Therefore, each country must continue to produce at its autarky [no trade] production point. Might it still be worthwhile to allow international trade? Why? 3. If the world price of automobiles is $10,000 under free trade and domestic producers of automobiles use $5000 worth of inputs, what is domestic value added under free trade? What would be the effective rate of protection to the domestic auto industry if
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I MID-TERM REVIEW QUESTIONS 1 - ECONOMICS OF GLOBAL...

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