1. Gains-from trade. (17points) There are two countries in the world, China and the United States. The countries satisfy the assumptions of the Ricardian model of trade. The two countries produce two goods, aircraft and phones. The following table gives the amount a worker can produce per year of each good in each country In each country there are 1 00 workers available for producing aircraft and/ or phones. 1. 1. Which country has a comparative advantage in phones? Explain. ( 2 points) 1.2. Fill in the blank: (1 point) If China is in autarky, and both goods are consumed, then an aircraft can be traded for phones. 1.3. Explain your answer to the previous question. (2 points) 1.4. Once the two countries open to trade with each other, what is the possible range for the price of aircraft (in terms of the number of phones an aircraft can be exchanged for) 9 Explain. (2 points) 1.5. Suppose that China and the United States open to trade with each other. Suppose that the resulting world price is that 1 aircraft can be exchanged for 100 phones. Draw graphs for both China and the U.S., showing: (i) the production possibilities frontier (PPF) with no trade; (ii) the consumption possibilities frontier (CPF) with no trade; (iii) the PPF with trade; and (iv) the CPF with trade. Put aircraft on the horizontal axis. Label the diagram carefully, making sure to include the numerical values for all places where curves meet axes. (4 points) 1.6. In the situation of the previous part, explain clearly how you know that the U.S. gains from trade. (3 points) i II 1.7. Your analysis above proves that the U.S. gains from trade in the Ricardian model as studied here. But in the real world, there are often protests against opening to trade. This suggests that something must be missing or wrong in the assumptions of the model, so that some groups of people feel that they lose from opening to trade. Explain in particular why U.S. workers employed in the phone sector gain in the Ricardian model, but that this conclusion might be less clear in a more realistic model of opening to trade. Hint: what do the workers in the phone sectordo after the two countries open to trade? What are the costs and benets ofdoing this in the model? In the 'reel world'?( 3 points) 2. True orfalse? (6 points) For each of the following statements, ll in the appropriate circle to indicate whether it is true or false. Then, briey explain in a couple of sentences. (3 points for each, 1 for the answer and 2 for a correct justification.) 2. 1. In the absence of government regulation or deposit insurance, a solvent bank (one with assets greater than liabilities) can do nothing to reduce the likelihood of bank runs. This statement is (choose one): 0 True 0 False