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Review_Midterm1 - Midterm 1 Review Questions Short Answer...

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Midterm 1 Review Questions Short Answer Questions: Ricardian Model 1. In the Ricardian model, if both countries have identical technologies, but one country has twice as much labor can trade be mutually beneficial? Why? 2. In a two country, two good, Ricardian model under free trade, if the MPL in the industry you are not specialized in increases, without changing patterns of comparative advantage, what will happen to the real wages? Ricardian Question: 1. The following question will investigate trade flows and factor prices in the Ricardian Model. Assume there are two countries (Home and Foreign), two goods (guns and butter) and one factor of production (labor). Suppose that in the Home country, 1 worker can make 4 guns or 5 pounds of butter. Suppose that in the foreign country, 1 worker can make 2 guns or 4 pounds of butter. Home has 100 workers while Foreign has 200 workers. a. Draw the autarky PPFs and determine the relative prices in each country. Place butter on the horizontal axis. If Home and Foreign were to trade freely which
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