assign2 - University of Hong Kong 2nd semester 2009-2010...

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1 University of Hong Kong 2 nd semester 2009-2010 ECON0301 Theory of International Trade Assignment 2 Due time: 5pm on 19 February 2008 (Friday) Answer all of the following questions Please hand in your OWN script to your TA (Mr. DAI Ming) on or before the deadline via his pageon box on the 9 th floor of K.K. Leung Building. 1. Suppose that a small open economy has 200 workers and that its technology requires 1 worker-hour per unit of food (thus 1 unit of food per worker-hour) and 3 worker- hours per unit of cloth (thus output per worker-hour = 1/3). In autarky, it employs 100 workers in each of the two industries. With free trade, it faces world prices of $10 per unit of food and $20 per unit of cloth. a. Suppose that in autarky, workers in both industries are paid $8 per hour. What are the autarky prices of food and cloth? b. When the country opens to free trade, under the normal assumptions of the Ricardian model, what will it produce, import, and export? From the information given, can you determine the quantities of any of these?
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