;,,Answer all the questions and explain your answer where neccessary .

EF5400 Advanced International Trade Practice Problem Set 1 1. Consider an economy in which there are two countries, i = 1,2, and a continuum of goods, indexed by & e [0, 1]. Goods are produced using labor: DI (#) = 1 (1) / m (k) . where a, (k) is the unit labor requirement for producing good & in country i, y (k) is the output of good & produced in country i and i, (k) is the amount of labor used in production. Assume that the unit labor requirement functions are a1 (k) = call-k) a2 (k) = god. The representative consumer in each country has the utility function This consumer is endowed with & units of labor where h = 12 = I. (a) Define an equilibrium of the economy. Calculate expressions for all of the equilibrium prices, p.(k), and quantities, c(k), y(), and (k). Draw a graph that illustrates the pattern of specialization in production, consumption, and trade. (b) Suppose now each country imposes an ad valorem tariff + on imports from the other country. Repeat the analysis of part (a). (c) For the model in part (b), calculate GDP in each country. 2. Consider an economy in which there is a continuum of goods, s E [0, co), which are ordered so that higher-indexed goods involve more advanced tech- nologies in the production process. An individual consumer has preferences given by u(c ) = em f tog (els.() + 1)ds at.Scenario: You are 30 years old, married, have two children, and household income (takeshome pay) of $3,500 per month. Your credit and consumer debt is as follows: I Car loan, 6% interest rate, $10,000 balance, $295 per month I Department store card, 28% interest rate, $600 balance, minimum payment 5% of balance I Discover Card, 12% interest rate, $2,000 balance, minimum payment 2% of balance I VISA Card, 13% interest rate, $3,000 balance, minimum payment 2% of balance I MasterCard 1, 14% interest rate, $4,000 balance, minimum payment 2% of balance I MasterCard 2, 14% interest rate, $0 balance, minimum payment 2% of balance I Gasoline card, 21% interest rate, $300 balance, minimum payment 5% of balance Assume all credit cards will assess a $35 late fee and ongoing penalty interest of 8% above the current rate if you miss a payment. Your recent VISA card statement came with a blank cash advance check (for up to $10,000) with terms of 23.99% APR and a fee of 3% if you use it. Your recent MasterCard 2 statement came with a balance transfer offer (up to $4,000) with no fee and 0% APR for 12 months, after which the normal interest rate applies. You recently found an incorrect amount charged on your VISA card from a store you frequent often. You'd like to come up with a plan to eliminate all of your credit card debt. In general, is it a good idea to make only minimum payments on your credit cards? 0 Yes, you can invest the money saved each month to earn interest. 0 No, the small payment requirement is mathematically guaranteed to keep you in debt for many years. 0 Yes, this allows you more flexibility in your cash budget. 0 No, it will cause your interest rate to go up. Assuming you have $1,500 in your budget this month with which to pay down your credit cards, how much should you pay on each card? (Note: The following data table is independent from the previous question.) If your answer is zero enter \"0". Outstanding Required minimum Recommended debt repayment Card Interest rate balance payment (026) payment ($) amount Department store card 28% $600 10% '$ ' '$ ' Discover Card 12% 2,000 8% ' ' ' ' VISA Card 13% 3,000 10% l ' l ' MasterCard 1 14% 4,000 8% ' ' ' ' MasterCard 2 14% 0 10% l ' l ' Gasoline card 21% 300 15% l ' l ' Total $9,900 $ $1,500 When designing a plan to pay off your credit card debt, which credit card should be repaid first? 0 The department store card, because it has the highest interest rate. Q The gasoline card, because it has the lowest balance. 0 The Discover Ca rd, because it has the lowest interest rate. 0 MasterCard 1, because it has the highest balance. After making the payments recommended above, should you take advantage of the balance transfer offer from MasterCard 2? 0 Yes, from MasterCard 1, it will save you the 14% interest charges for a year. O No, they will all be paid off within a year anyway. 0 Yes, from the department store card, since it has the highest interest rate. O No, it will not change your total balance owed. After making the payments recommended above, should you use the VISA cash advance check to repay your remaining credit card obligations? O No, absolutely not, the interest rate is higher than any other remaining debt plus additional fees would also be incurred. 0 Yes, use it to pay off the department store card. 0 Yes, use it to pay off the car loan. 0 Yes, use it to pay off all other remaining credit card debt. Hint: You may use a financial calculator or the data in the table below to answer the following question: Assuming that you do not charge anything else to your Discover card and that you continue to make the current month's minimum required payment until the debt is repaid, it will take V to totally repay your outstanding balance. Monthly Installment Payment Required to Repay $1,000 APR Months 12 24 36 48 60 10% 87.92 46.14 32.27 25.36 21.25 11% 88.38 46.61 32.74 25.85 21.74 12% 88.85 47.07 33.21 26.33 22.24 13% 89.32 47.54 33.69 26.83 22.75 14% 89.79 48.01 34.18 27.33 23.27 After paying off all of your credit card balances, should you cancel all of your cards? O No, there are perks and rewards programs of which I can take advantage, but I will pay the balance in full each month from now on. O No, discontinued credit cards will have a negative effect on my credit score. 0 No, there are instances, such as when making a hotel reservation or renting a car, when a credit card is required. 0 All of these are reasons for keeping and managing wisely some credit cards. You have an incorrect charge on your VISA card. What is the first step you should take to resolve this error? 0 Send a notice in writing to the credit card issuer. 0 Notify the merchant involved. 0 Contact the credit bureau and le a complaint. 0 Pay in full the statement that contains the disputed transaction. when disputing the error in your VISA card statement, be prepared to provide the following documentation to your credit card issuer: O Photocopies of the receipt and credit card statement 0 The original receipt 0 The original credit card statement O A photocopy of your credit report To constitute a valid dispute, you must le your complaint within 7 days alter the date on which 7 , while the credit card issuer has another V days to acknowledge your notication of the dispute. The issuer must resolve your claim within a maximum of V days