Appleyard/field:

QUESTIONS AND PROBLEMS 1. The following table shows the number of days of labor (a) Calculate the number of units of textiles and autos that required to produce 1 unit of output of computers and wheat can be produced from 1 day of labor in each country. in France and Germany: (b) Suppose that the United States has 1,000 days of labor available. Construct the production-possibilities frontier Computers Wheat for the United States. France 100 days 4 days (c) Construct the U.S. consumption-possibilities frontier with trade if the terms of trade are 1 auto:2 units of textiles. Germany 60 days 3 days (d) Select a pretrade consumption point for the United States, and indicate how trade can yield a consumption (a) Calculate the autarky price ratios. point that gives the United States greater consumption (b) Which country has a comparative advantage in comput- of both goods. ers? Explain why. Which has a comparative advantage 3. In the example in Question 2, suppose that the United States in wheat? Explain why. always wishes to consume autos and textiles at the ratio of (c) If the terms of trade are 1 computer:22 units of wheat, 1 auto to 10 units of textiles. What quantity of each good how many days of labor does France save per unit of its would the United States consume in autarky? What combi- import good by engaging in trade? How many days does nation would the United States consume with trade and com- Germany save per unit of its import good? plete specialization? What would be the gains from trade? (d) If the terms of trade are 1 computer:24 units of wheat, 4. In the light of the Ricardian model, how might you evaluate how many days of labor do France and Germany each the claim by developing countries that they are at a disad- save per unit of their respective import good? vantage in trade with powerful industrialized countries? (e) What can be said about the comparative distribution of 5. Suppose that Portugal requires 4 days of labor to produce the gains from trade between France and Germany in part (d) and part (c)? Why? 1 unit of wine and 6 days of labor to produce 1 unit of cloth- 2. The following table shows the number of days of labor ing, while England requires 8 days of labor to produce 1 unit required to produce a unit of textiles and autos in the United of wine and 12 days of labor to produce 1 unit of clothing. Kingdom and the United States: Which country has absolute advantages and why? What is the situation with respect to comparative advantages? Textiles Autos 6. How can a country gain from trade if it is unable to change United Kingdom its production pattern? 3 days 6 days United States 2 days 7. During the debate prior to the passage of the North American 5 days Free Trade Agreement (NAFTA), opponents argued that given the relative size of the two economies, the incomei- 9. Suppose that country A and country B both have the same amount of resources and that country A has an absolute advan- at tage in both steel and wheat and a comparative advantage in se steel production. Draw production-possibilities frontiers for rt countries A and B (on the same graph) that reflect these charac- teristics, and explain why you drew them in the manner you did