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

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

Suppose Italian workers can produce 4 cars per year and German workers can produce 8 cars per year. Suppose Italian workers can produce 5 tons of garments per year and German workers can produce 6 tons of garments per year. Trade between Italy and Germany would lead to?Group of answer choicesEmployment gains in Italian car manufacturingExports of cars from Germany to ItalyLower relative price of cars in GermanyLower relative price of garments in Italy

The table below shows productivity of labour, i.e., outputs per worker. They represent the quantity of output per unit of labor that each country can produce in the two industries, Xand Y. Product Country A Country BGood X 8 6Good Y 4 2Determine which country has an absolute advantage in good X, absolute advantage in good Y and a comparative advantage in good X. Choose the correct answer from the options below. Country A, Country A, Country B Country B, Country A, Country ACountry A, Country B, Country B

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?

Consider a Ricardian framework with two countries, A and B, and two products, G1 and G2. The following table shows the marginal product of labour in G1 and G2 in both countries. G1 G2Country A 3 8Country B 7 5Which one of the following independent scenarios is not possible at the trade equilibrium? Group of answer choicesCompared to autarky, country A workers receive the same real wage in G2.Relative price of G1 is 5/7.Compared to autarky, country B workers receive higher real wage in G1.Relative price of G1 is 8/3.