A. Suppose that we are in a Ricardian world in which Japan decides to trade with Malaysia. The current exchange rate is approximately 30 Japanese Yen to 1 Malaysian Ringgit. Wages in Malaysia are 10 ringgit per hour, and wages in Japan are 900 yen per hour. Now suppose that the two countries consider trading sak and batik textile art. It takes Japanese workers 1 hour to produce a bottle of sak, and 2 hours to produce batik. It takes Malaysian workers 2 hours to produce a bottle of sak, and 1 hour to produce batik. Can Malaysia benefit from trade? Can Japan benefit from trade? Provide a clear explanation why or why not.

B. Provideanyadjustment to the problem setup above (you can be creative here) that will result in Malaysia exporting batik, and Japan exporting sak. Using the export condition and terms of trade, explain your reasoning for why both countries would benefit from this trading pattern.

C. Suppose now that following a severe recession in Japan, wages drop to 600 yen per hour. Wages in Malaysia and the exchange rate have not changed. Now suppose that the two countries both also produce and consume Nintendo DS consoles and semiconductors. It takes Japanese workers 2 hours to produce a Nintendo DS, and Malaysian workers 6 hours to produce a DS. It takes Malaysian workers 4 hours to produce a semiconductor, and Japanese workers 2 hours to produce a semiconductor. Explain the resulting pattern of trade, showing which country exports which good in equilibrium.