Problem Set #4 - Below are given the domestic demand and...

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Problem Set #4 (due Friday, February 13) Ec 201 Spring, 2009 Michigan State University L. Martin 1. Comparative advantage. The following table gives the annual productivities of typical workers in Canada along with the corresponding world prices. Canada output World price lumber 1,000 bd ft $2.00 light bulbs 1,000 $1.00 a. Draw its production possibilities curve. b. In which good does Canada have comparative advantage? c. Predict its pattern of trade. d. Show how it can gain from trade. 2. Comparative advantage. The following table gives the annual productivities of typical workers in Bulgaria and Poland for wine and wheat. Bulgaria Poland wine (cases) 6 16 wheat (000s bu) 12 64 a. Plot the production possibilities frontiers. b. Which country has absolute advantage in wheat? c. Which country has absolute advantage in wine? d. Which country has comparative advantage in wheat? e. Which country has comparative advantage in wine? f. Predict the pattern of trade. g. Show how both countries can gain from trade.
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3. (small, open economy)
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Unformatted text preview: Below are given the domestic demand and supply for cut (long stem) roses. demand supply price quantity price quantity $4.50 25,000 $4.00 50,000 $0.25 $3.50 100,000 $0.50 $3.00 150,000 $1.00 50,000 $2.50 200,000 $1.50 100,000 $2.00 250,000 $2.00 150,000 $1.50 300,000 $2.50 200,000 $1.00 400,000 $3.00 250,000 $0.50 500,000 $3.50 300,000 $0.25 600,000 $4.00 350,000 $4.50 400,000 a. Find the autarkic (i.e. no trade) equilibrium price and quantity. b. Suppose that the world price is $1. Will the country import or export roses? How much? c. Draw a diagram. d. Suppose that a tariff of $1 per dozen is imposed. Find the new equilibrium price, quantity supplied, quantity demanded, imports and tariff revenue. e. Draw a diagram. Show the revenue and the deadweight burden. f. Suppose that the world price is $4. Will the country import or export roses? How much? g. Draw a diagram. Show the expenditure and the deadweight burden....
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