PPF Diagram of the U.S. Airplanes a. ( 4 points) Under autarky (in absence of trade), the assigned country produces and consumes 800 units of toys and 800 units of airplanes. Indicate the production and consumption combination of two goods on the diagram of PPF of the assigned country and mark as A. How much is a relative price of toy ( PToy/PAirplane) in the assigned country at A ? [Show your computation work] On the diagram of PPF, indicate an area of combinations of two products that is definitely better than the consumption combination at A under the autarky and mark as DBCA (Definitely Better Consumption Area). Note: Check Slide 13 \& 14 of PowerPoint presentation on Learning Unit \# 6 for Definitely Better Consumption Area. b. ( 6 points) The assigned country and the Europe agree to trade goods at a relative price of toy at 1 (PToy/PAirplane =1). Find the optimal combination of production of two goods along the PPF of the assigned country at PToy/PAirplano=1 and mark as P. How many units of toys and how many units of airplanes will the assigned country produce at P ? At a relative price of toy at 1(PToy/PAiplane=1), find a pattern of trade with the Europe that the assigned country will have definitely better consumption after trade than the consumption under the autarky (Point A). How may units of airplanes and how many units of toys will the assigned country trade with the Europe? Which goods will the assigned country export, toys or airplanes? Which goods will the assigned country import, toys or airplanes? Indicate the export (quantity) of goods on the diagram of PPF of the assigned country and mark as EX. Indicate the import (quantity) of goods on the diagram of PPF of the assigned country and mark as IM. Note: There are many possible patterns of trade which make the assigned country have definitely better consumption combination better than the consumption combination at A under the autarky. You only answer one case. On the diagram of PPF, indicate a point of consumption in the assigned country after specialization and trade and mark as C. After trade, how many units of toys and how many units of airplanes can the assigned country consume? c. (5 points) A relationship between the relative price of toy (PToy/PAirplane) and the relative factor price of labor (w/r) is given on the diagram on Page 6 of this assignment. Given the relative price of toy under autarky, as you answered on Question a above, how much is a relative factor price of labor (w/r) in the assigned country? [Show it on the SS diagram] A relative price of toy of the Europe under autarky is 1 ( PToy/PAipplane=1), how much is a relative factor price of labor (w/r) in the Europe? [Show it on the SS diagram] As compared with the Europe, is the assigned country labor-abundant or capital-abundant? The assigned country and the Europe agree to trade goods at a relative price of toy at 1(PToy/PAiplane=1). According to the Heckscher-Ohlin Theorem, which goods are labor-intensive, toys or airplanes? Which goods are capital-intensive, toys or airplanes? As the assigned country engages in trade (as compared with the autarky), will the relative factor price of labor (w/r) increase or decrease in the assigned country? Note: There will be two diagrams in your report. - PPF Diagram of the U.S. or China on Question a and b PPF Diagram of the U.S. Airplanes a. ( 4 points) Under autarky (in absence of trade), the assigned country produces and consumes 800 units of toys and 800 units of airplanes. Indicate the production and consumption combination of two goods on the diagram of PPF of the assigned country and mark as A. How much is a relative price of toy ( PToy/PAirplane) in the assigned country at A ? [Show your computation work] On the diagram of PPF, indicate an area of combinations of two products that is definitely better than the consumption combination at A under the autarky and mark as DBCA (Definitely Better Consumption Area). Note: Check Slide 13 \& 14 of PowerPoint presentation on Learning Unit \# 6 for Definitely Better Consumption Area. b. ( 6 points) The assigned country and the Europe agree to trade goods at a relative price of toy at 1 (PToy/PAirplane =1). Find the optimal combination of production of two goods along the PPF of the assigned country at PToy/PAirplano=1 and mark as P. How many units of toys and how many units of airplanes will the assigned country produce at P ? At a relative price of toy at 1(PToy/PAiplane=1), find a pattern of trade with the Europe that the assigned country will have definitely better consumption after trade than the consumption under the autarky (Point A). How may units of airplanes and how many units of toys will the assigned country trade with the Europe? Which goods will the assigned country export, toys or airplanes? Which goods will the assigned country import, toys or airplanes? Indicate the export (quantity) of goods on the diagram of PPF of the assigned country and mark as EX. Indicate the import (quantity) of goods on the diagram of PPF of the assigned country and mark as IM. Note: There are many possible patterns of trade which make the assigned country have definitely better consumption combination better than the consumption combination at A under the autarky. You only answer one case. On the diagram of PPF, indicate a point of consumption in the assigned country after specialization and trade and mark as C. After trade, how many units of toys and how many units of airplanes can the assigned country consume? c. (5 points) A relationship between the relative price of toy (PToy/PAirplane) and the relative factor price of labor (w/r) is given on the diagram on Page 6 of this assignment. Given the relative price of toy under autarky, as you answered on Question a above, how much is a relative factor price of labor (w/r) in the assigned country? [Show it on the SS diagram] A relative price of toy of the Europe under autarky is 1 ( PToy/PAipplane=1), how much is a relative factor price of labor (w/r) in the Europe? [Show it on the SS diagram] As compared with the Europe, is the assigned country labor-abundant or capital-abundant? The assigned country and the Europe agree to trade goods at a relative price of toy at 1(PToy/PAiplane=1). According to the Heckscher-Ohlin Theorem, which goods are labor-intensive, toys or airplanes? Which goods are capital-intensive, toys or airplanes? As the assigned country engages in trade (as compared with the autarky), will the relative factor price of labor (w/r) increase or decrease in the assigned country? Note: There will be two diagrams in your report. - PPF Diagram of the U.S. or China on Question a and b