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PSLecture9 - Problems for Lecture 9 The Gains from...

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Problems for Lecture 9: The Gains from International Trade and Specialization: Even Dummies Gain from Trade with Trade Issues Like VERS and Doha [November 10, 2009] Note: Questions marked with a T are important and intended for discussion in tutorials and available for tests. T9.1 “Iris notes that labour is the only factor of production required for coconuts. Iris reads that in Barbados the labour productivity for coconuts in higher than in St. Lucia. Therefore, Iris concludes that Barbados has a comparative advantage in coconuts. Both countries also produce mangos with labour as the only factor of production.” T9.2 Assume that Ireland and Germany produce only two goods, beer and pork, with labour as the only factor of production. The following labour productivities exist: in Ireland, 10 units of labour can produce either 30 beer or 60 pork; in Germany, 10 units of labour can produce either 60 beer or 30 pork. “Given the preceding information, Igor states that each country has an absolute advantage in a different product. Igor also holds that if the two countries were to trade at the international terms of trade ratio of one unit of beer for one unit of pork, then both countries would experience gains from trade. More specifically, at 10 units of labour, Ireland would gain 30 units of beer and, at 10 units of labour, Germany would gain 30 units of pork.” T9.3 Assume that Brazil and Mexico only produce Hot Bits and Cold Bits with labour as the only factor of production. The following labour productivities exist: in Brazil, 50 units of labour can produce either 100 Hot Bits or 400 Cold Bits; in Mexico, 50 units of labour can produce either 50 Hot Bits or 100 Cold Bits.
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