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# Assume that two countries home and foreign each

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18. Assume that two countries (Home and Foreign) each produce two goods (corn and wheat) under constant cost production. Home produces 0.5 ton of corn or 1 ton of wheat with a day of labor. Without trade (in autarky), Home's daily production is 20 tons of wheat and 10 tons of corn. Suppose that Home completely specializes, and it consumes 20 tons of wheat after it begins trading with Foreign. Home trades with Foreign at a 1 to 1 ratio of corn for wheat. How many tons of corn does it consume when it trades with Foreign? A) 10 tons of corn B) 20 tons of corn C) 30 tons of corn D) insufficient information is given 19. Assume that two countries (Home and Foreign) each produce two goods (corn and wheat) under constant cost production. Home produces 0.5 ton of corn or 1 ton of wheat with a day of labor. Without trade (in autarky), Home's daily production is 20 tons of wheat and 10 tons of corn. Now suppose that Home has the opportunity to trade with Foreign at an international price of corn equal to 1 ton of wheat per ton of corn. In which product will Home find its comparative advantage? 20. The Heckscher-Ohlin ( HO) theorem explains patterns of trade between countries using: Page 4

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21. Consider two products, automobiles and shoes. If shoes are labor intensive and automobiles are capital intensive, what can we expect in free-trade conditions? 22. The implication of resources being mobile domestically is that: A) there is often unemployment. B) capital and land are often not suited for use in other industries. C) labor and capital are paid the same wage and rental price in all domestic industries. D) they lose the chance to become guest workers in other nations. Use the following to answer questions 23-24: Table: Capital Intensity Across Industries U.S. Capital/Labor Ratios in Selected Industries Industry K/L (\$/worker) Apparel and other textile products \$8,274 Leather and leather products \$12,466 Furniture \$21,736 Lumber and wood products \$39,134 Textile mill products \$44,060 Electronic and electric equipment \$54,582 Primary metal industries \$123,594 Paper and allied products \$171,730 Chemicals and allied products \$192,593
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