Let us consider two big countries, H and F, that are trading with each other a good X and a good Y.i) Draw the graph for the excess demand curves for good Y for these two countries under free trade,under the hypothesis that ; that is, the equilibrium relative price p X/p Y in autarchy is higher incountry H with respect to country F. Determine also graphically the equilibrium terms of trade, . What isthe condition that equilibrium terms of trade satisfy?Country F decides to levy an ad valorem tariff equal to t on imports. After the introduction of the tariff,equilibrium terms of trade change, and they assume a new value that we indicate with .ii) Write the analytic expression for the domestic relative price in country F, , after the importtariff is levied, as a function of the new international terms of trade .iii) Show graphically through the excess demand curves for good Y in country H and country F how todetermine the new terms of trade, , after the tariff is levied.Redo points ii) and iii) in the case of an import tariff levied by country H on good X.■FAHA p>ppˆpˆtpˆFtptpˆtpˆ

Which condition does not have to hold in a trade equilibrium of a Ricardian modelGroup of answer choicesExport from one country is equal to import to anotherCosts of imported goods are equal to costs of exported goods for both countriesReal wages are equalized in two countriesWorld price lies between autarky prices in both countries

If a good is imported into (large) country H from country F, then the imposition of a tariff incountry HA) raises the price of the good in both countries (the "Law of One Price").B) raises the price in country H and cannot affect its price in country F.C) lowers the price of the good in both countries.D) lowers the price of the good in H and could raise it in F.E) raises the price of the good in H and lowers it in F.

Equilibrium is the condition that existsA.when the demand curve intersects the price axis.B.when the demand curve intersects the quantity axis.C.when quantity demanded equals quantity supplied.D.whenever there is no government intervention in the market.

Assume two countries: H and F. Each country produces two goods, A and B. Good A is relatively capitalintensive and country F is relatively labor abundant. Consider H and F to be large economies.1. Suppose the amount of labor in country F increases. Using a diagram show how the PPF and theproduction point of country F change.2. Suppose the amount of labor in country F increases.i. Using a diagram show how the world relative supply for good B and the world relative price ofgood B changes.ii. How does it affect the terms of trade of country F?iii. How does it affect the terms of trade of country H?iv. How does it affect the welfare of country F?v. How does it affect the welfare of country H?

Economic theory suggests that a switch to free trade would:Question 23Select one:a.Result in both countries’ indifference curves shifting outward, increasing the utility of both countries populations.b.Result in no change in the slopes of both countries’ isorevenue lines and budget lines.c.Result in both countries’ indifference curves shifting inward, reducing the utility of the populations both countries.d.Result in one country invading the other country making the quality of life worse in both countries.e.Have no effect on countries’ indifference curves, budget lines, isorevenue lines, or production possibilities curves.