worksheet 9 - Emily Leung Friday 10:10 Introduction to...

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Emily Leung Friday 10:10 Introduction to Macroeconomics Econ 104a,c,d,e,f, - Spring 2010 Worksheet 9 International Trade 1. Consider the production possibilities for the following planets of Ecotopia and Automatania. Then use the theory of comparative advantage to draw them consumption possibilities frontiers…that is, if they trade, what could each consume? Automatania Fun Machines 100 50 | | | 400 800 1400 Tons of Food Ecotopia Fun Machines 100 50 | | 350 700 Tons of Food What will the range of terms of trade be between these two countries? If Automatania trades 50 then Ecotopia can have 600.
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2. Who first formulated the theory of free trade, comparative advantage? Explain the basic logic of the theory. The logic of comparative advantage is that both parties participating in the trade do better when they specialize in what they do best and then trading each countries benefits. This theory was fist formulated by David Ricardo in the early 1800’s. This logic to this theory also encompasses a country being able to give up fewer other commodities to produce a unit of the commodity than another country would have to give up. This also means that one country can produce products more efficient than another and then trade is expanded. 3.
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This note was uploaded on 10/19/2011 for the course ECON 104 taught by Professor Dolenc during the Spring '08 term at UMass (Amherst).

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worksheet 9 - Emily Leung Friday 10:10 Introduction to...

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