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review_Ch3&4 - 6 Compare pre-trade and after trade...

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Econ 306 Chapters 3 and 4 – review questions 1. Calculate the opportunity cost of cloth and wheat in both countries. 2. Which country will specialize in the production of cloth? In the production of wheat? 3. Determine the range of the international prices of wheat and cloth. 4. Assuming that each country has 100 labour hours, derive the production possibilities curves for each country. Assuming that the international price of both cloth and wheat is 1, draw the trade lines in each graph. 5. True-false-uncertain. Explain. If a country has an absolute advantage in producing both cloth and wheat it will not benefit from international trade. Exports are good and imports are bad. After opening trade, consumption is at a point beyond the production possibilities curve.
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Unformatted text preview: 6. Compare pre-trade and after trade production and consumption levels of cloth and wheat in both countries. 7. Explain how you will derive the demand curve for cloth. 8. Explain how you will derive the demand curve for wheat. 9. How much cloth is exported? How much wheat is exported? 10. Suppose that the price of cloth goes up. How will this affect the trade line and optimal level of consumption in the cloth exporting country? Show on the graph and explain. 11. Chapter 3 – end of chapter questions 1, 3, 5, and 7 (the answers are provided in the text) 12. Chapter 4 – end of chapter questions 1, 3, and 7 (the answers are provided in the text)...
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