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Unformatted text preview: Name: Student ID: Economics 101 Spring 2005 International Trade Second Midterm Exam May 12, 2005 Time: 80 minutes Total score: 80 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 do your arguments change if the labor forces are not equally large, L 6 = L * ? 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 M /P F ? Choose one possible relative equilibrium price P M /P F . Is trade beneficial to both countries? 1 Name: Student ID: 2 World Supply and Demand: 10 minutes Two countries can produce computers and wool. The unit labor requirements for Home (no asterisk) and Foreign (asterisk) are listed in the table below. The countries labor forces are L = 100 and L * = 200. Home Foreign Computers a LC = 2 a * LC = 8 Wool a LW = 6 a * LW = 2 Which country has a comparative advantage in computer manufacturing? Graph the relative world supply of computers ( Q * C + Q C ) / ( Q * W + Q W ) and its response to the relative world price of computers P C /P W in the diagram below. Provide specific values for changes to the regime of relative world supply on the axes....
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