from International Trade Theory and Evidence 1995

1. Can the notion of comparative advantage apply to trade between individuals? Suppose a lawyer is a better typist than his or her secretary. Who should do the typing? Why? 2. Interpret Table 73 as the maximum feasible outputs of X and Y for countries H' and F (i.e., each has one unit of labor). Draw the production possibility sets for both and nd the possible range of equilibrium commodity prices. Does it make any difference to anything whether we double Country H's maximum outputs ofX and Y by (a) doubling H's labor supply or by (b) doubling a and :3 for Country H? (Hint: what about per capita income?) Does the manner in which Country H doubles its maximum feasible outputs (in question 3) make any di'erence to Country F? . Suppose that in tree made, the wage rate in Country H is $10 per unit of labor, while the wage in Country F is $100 per unit of labor. Using the data in Table 7.3, compute the average costs of production of both goods in both countries. indicate why this cannot be an equilibrium set of wages and describe what. must happen to these wages. What are the limits to the relative wage ratio in this case? . Is the horizontal section of Country H's excess demand curve necessarily symmet- ric around zero? That is, are OH andH '0 of equal length in Fig. 7.3? Under what special circumstance are they of equal length? (Hint: the answer has something to do with preferences.) . If the growth in Country F shown in Figs. 7.6 and 7.7 is due solely to growth in labor supply, what is the implication of the deterioration in the terms of trade for the real income of labor (0r per capita consumption)? (Hint: begin with Eq. (7.7)) . With reference to Figs. 7.6 and 7.7, what would happen instead if the productivity growth in Country F were in only the Y industry? Show how F's excess demand (III-Inns culling