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tradeproblem5 - a Most of the world’s aluminum is smelted...

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Problem Set 5 Due Monday February 28 th 1. Suppose that the two countries we considered in the numerical examples of Krugman and Obstfeld pages 127-129 were to integrate their automobile industries with a third country with an annual market for 3.75 million automobiles. Find the number of firms, the output per firm and the price per automobile in the new integrated market after trade. 2. Evaluate the relative importance of economies of scale and comparative advantage in causing the following:
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Unformatted text preview: a. Most of the world’s aluminum is smelted in Norway or Canada. b. Half of the world’s large jet aircraft are assembled in Seattle. c. Most semiconductors are manufactured in either the United States or Japan. d. Most Scotch whiskey comes from Scotland. e. Much of the world’s best wine comes from France. Hint: Problem 1 is slightly tricky as one of the solutions is not a whole number. Think carefully what this means in terms of economics. Adjust your final answer accordingly....
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