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Exam 2 Solutions

# Exam 2 Solutions - IMPORTANT Place your NAME FORM NUMBER...

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MULTIPLE CHOICE (60 POINTS) 1) Suppose that a j i is the unit labor requirement for good j in country i . If there are two countries (North & South) and two goods (X&Y) what inequality must hold in order for the South to possess a comparative advantage in good X? a. a X N < a X S b. a X N / a X S < a Y N / a Y S c. a X N / a X S > a Y N / a Y S d. a X N / a Y N < a X S / a Y S e. a X N > a X S 2) Suppose that Belgium only produces diamonds and Columbians only produce cups of coffee. Diamonds cost \$200 each and coffee costs \$1.25 a cup. Belgian workers can each produce 1000 diamonds per year. A Colombian worker can produce 1000 cups of coffee per year. The Ricardian model predicts that the relative nominal wage of a Belgian worker to a Colombian worker will be: a. 0.16 b. 1.6 c. 16 d. 160 e. 1600 3) Given the basic Ricardian model, there are two countries (A&B) and two goods (X&Y) and unit labor requirements are as below: X Y A 42 21 B 13 26 In free trade, the relative price of one unit of X in terms of Y must be between ____ and ____. a. 0.5,2 b. 1/3,2 c. 0.5,4 d. 13,21 e. 26,42
4) With respect to the gains from trade, the Heckscher-Ohlin model predicts that a. Everyone always gains from trade. b. winners win by the same as losers lose. c. the relatively abundant factor gains while the relatively scarce factor loses. d. the relatively abundant factor loses while owners of the relatively scarce factor gains. e. the South gains from trade while the North neither gains nor loses.

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Exam 2 Solutions - IMPORTANT Place your NAME FORM NUMBER...

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