Consider Home and Foreign in a Ricardian world (includes all the assumptions of the Ricardianmodel). Each country produces two goods, wine and cotton. Each country has 4,800 labour hoursavailable. The accompanying table shows the number of hours required to produce one unit ofeach good in each country. Answer the following questions using the information given by thetable:a. What is the opportunity cost of cotton in each country? Show your work.b. Draw the graph of the production possibility frontier (PPF).c. Which country has an absolute advantage in Wine? Explain your answer.d. Which country has a comparative advantage in Wine? Show your work and explain your answer.e. Which good does each country produce and export when the equilibrium international relativeprice of wine in terms of cotton is 1?f. Suppose the equilibrium international relative price of wine in terms of cotton is 1. Draw the graphof the production possibility frontier (PPF) for each country when they trade. Show how the twocountries can benefit from free trade. Explain your answer and fully label your graph to get marks.g. Draw the world relative supply (RS) of wine. Fully label your graph to get marks (Do not drawthe world relative demand (RD) of wine yet).h. Now, suppose that the world relative demand is drawn such that the equilibrium internationalrelative price of wine is at 1. Draw the world relative demand curve of wine on the diagram above(in part g). Explain which country (countries) benefit(s) (most) from free trade in this case.i. Now, suppose that the world relative demand is drawn such that the equilibrium internationalrelative price of wine is at 1.25 (=5/4). Draw the world relative demand curve of wine on thediagram above (in part g). Explain which country (countries) benefit(s) (most) from free trade inthis case.j. Calculate Home country’s relative productivity of labour in each sector.k. Suppose that the price of wine is $10 per bottle and the price of cotton is $10 per bushel. Calculatethe relative wage in Home (the wage of Home relative to the wage in Foreign). Show your workand explain your answer.l. Show the relative wage in Home lies in between the relative productivity of labour of two sectorsusing the information you obtained from parts j and k.Wine CottonHome 6 8Foreign 5 4

Consider China and US in a Ricardian world. Each country produces two goods, corn andwheat. Each country has 600 units of labour hour available. The table of unit labour costs forproduction of each good in each country is below:Corn WheatChina 6 4US 2 2a. Derive China’s production possibility frontier (PPF). (Write down an equation of China’sPPF)b. Draw China’s PPF. Have the quantity of corn on the horizontal axis.(Derive US’sproduction possibility frontier (PPF). (Write down an equation of US’s PPF)c. Draw US’s PPF.Have the quantity of corn on the horizontal axis.d. Derive US’s production possibility frontier (PPF). (Write down an equation of China’sPPF)e. What is the slope of PPF of China? Explain your answer.f. What is the slope of PPF of US? Explain your answer.g. In the absence of trade, what would be the prices of corn in terms of wheat in China?

Consider China and US in a Ricardian world. Each country produces two goods, corn andwheat. Each country has 600 units of labour hour available. The table of unit labour costs forproduction of each good in each country is below:Corn WheatChina 6 4US 2 2a. 1) What is the marginal product of labour in corn in China?2) What is the opportunity cost of producing corn in China?b. 1) What is the marginal product of labour in wheat in China?2) What is the opportunity cost of producing wheat in China?c. 1) What is the marginal product of labour in corn in US?2) What is the opportunity cost of producing corn in US?d. 1) What is the marginal product of labour in wheat in US?2) What is the opportunity cost of producing wheat in US?e. Which country has absolute advantage in corn?f. Which country has absolute advantage in wheat?g. Which country has comparative advantage in corn?h. Which country has comparative advantage in wheat?

Consider two countries, Germany and France, and two goods, cars and wine. Labour is the only input factor used. The table below presents the marginal products of labour in both countries and industries. Cars Wine Germany 60 80 Italv 60 50 There are 120 units of labour available in Germany and 95 units in Italy. 1) Determine and explain which country has the absolute advantage in wine production. Calculate the autarky relative prices of wine in these two countries. (2 points) Suppose at the trade equilibrium, the relative price of wine is 0.75. 2) Determine the type of goods produced in each country. Explain with reference to opportunity cost and the comparative advantage. (5 points) 3) Draw the export supply and import demand diagram of wine. Carefully label everything on your diagram. (3 points) 4) Quantify the gains from trade for Italy. [Hint: calculate and compare the real wage in terms of the imported good before and after opening to trade.] (4 points) Saved at 16:02

Suppose that Richland and Prosperity have the production possibilities shown below: RICHLAND’S PRODUCTION POSSIBILITIES (millions of units) A B C D E Wheat 60 45 30 15 0 Wine 0 5 10 15 20 PROSPERITY’S PRODUCTION POSSIBILITIES (millions of units) A B C D E Wheat 40 30 20 10 0 Wine 0 15 30 45 60 Assume that cost and productivity remain constant. Round your answers below to 2 decimal places. a. What is the opportunity cost of producing one bushel of wheat in Richland? 1 bushel of wheat = 0.33 barrels of wine. b. What is the opportunity cost of producing one barrel of wine in Richland? 1 barrel of wine = 3 bushels of wheat. c. What is the opportunity cost of producing one bushel of wheat in Prosperity? 1 bushel of wheat = 1.5 barrels of wine. d. What is the opportunity cost of producing one barrel of wine in Prosperity? 1 barrel of wine = 0.67 bushels of wheat. e. In what product does Richland have a comparative advantage? Richland: Wheat f. In what product does Prosperity have a comparative advantage? Prosperity: Wine Suppose that both countries are presently producing combination C. g. Fill in the blanks in the following table: TOTAL OUTPUT IN MILLIONS OF UNITS Wheat Wine Richland 30 10 Prosperity 20 30 Total Both countries 50 40 Now suppose that each country specializes in the product in which it has a comparative advantage. h. Show the results in the following table: Wheat Wine Richland 60 0 Prosperity 0 60 Total Both countries 60 60 i. What is the joint gain from trade? 10 Wheat and 20 Wine Suppose that the two countries establish the terms of trade at 1 wine = 1.5 wheat, and Prosperity decides to export 18 wine to Richland. j. In the following table show how the two countries will share the gains from trade. Round your answers below to 1 decimal place. GAINS FOR EACH COUNTRY Wheat Wine Richland Prosperity Total Both countries

Consider a production possibilities frontier (PPF) with Good X on the horizontal axis and Good Y on the vertical axis. The slope of the PPF tells us the _____ of producing one additional unit of Good X.Multiple choice question.profitabilitytotal costaverage costopportunity cost