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Unformatted text preview: Name: Student ID: Economics 101 — Spring 2006 International Trade First Midterm Exam April 27, 2006 Time: 70 minutes Total score: 70 points 1 Productivity Differences and Trade: 10 minutes Two countries can grow food and produce manufactures. The production possibility fron- tiers for Home (no asterisk) and Foreign (asterisk) are depicted in the graph below. Both countries’ labor forces are equally large, L = L * . Q M ,Q M Home and Foreign manufacturing output H o m e a n d F o r e i g n f o o d p r o d u c t i o n L /a * * LF =10 Q F ,Q F * * L /a * * LM =10 L/a LM =8 L/a LF =4 • Calculate the opportunity cost of food in terms of manufactures for Home and Foreign. • Which country has an absolute advantage in food production? Which country has a comparative advantage in manufacturing? How does your answer change if the labor forces are not equally large, L 6 = L * ? • Choose one possible relative equilibrium price P M /P F . Is trade beneficial to both countries? 1 Name: Student ID: 2 Revealed Comparative Advantage: 10 minutes There are two countries, Home (no asterisk) and Foreign (asterisk). Labor is the only factor of production and can be allocated to the production of manufactures or food. The relative demand and relative supply of manufactures and food are depicted in the following graph ( a Li denotes unit labor requirements in producing good i , L and L * are Home and Foreign labor forces). P M / P F Relative supply and demand of manufactures R e l a t i v e w o r l d p r i c e o f m a n u f a c t u r e s Q M +Q * M Q F +Q * F Relative Supply Relative Demand...
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This note was uploaded on 10/27/2011 for the course ECON 101 taught by Professor Jacobson during the Fall '03 term at UCSD.
- Fall '03