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Unformatted text preview: Economics 101 Fall 2003 International Trade Mock Midterm Exam 1 October 13, 2003 Time: 50 minutes Total score: 50 points 1 Productivity Differences and Trade: 10 minutes The production possibility frontiers for Home (no asterisk) and Foreign (asterisk) are de- picted in the graph below. Both countries labor forces are equally large, L = L * . Q C ,Q C Home and Foreign cheese production H o m e a n d F o r e i g n w i n e p r o d u c t i o n L /a * * LW =50 Q W ,Q W * * L /a * * LC =50 L/a LC =20 L/a LW =40 Calculate the opportunity cost of cheese in terms of wine for Home and Foreign. Which country has an absolute advantage in cheese production? Which country has a comparative advantage in cheese production? Home and Foreign are trading. Each country completely specializes in one good. What is the possible range of the relative equilibrium price of cheese P C /P W ? Choose one possible relative equilibrium price P C /P W . Is trade beneficial to both countries? You may explain briefly in words or illustrate your answer graphically.countries?...
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- Fall '03