SHOW ALL FORMULAE AND CALCULATIONS 1. Consider the following Labour requirements: TABLE 1: Labour Requirements Shoes (S) Wine (W) Switzerland She/pr 4hrigal Italy 6hr/pr 4hrigal a) Evaluate the basis for trade and the resulting trade patterns that would emerge in terms of both Adam Smith and David Ricardo's trade models. ANSWER THE REMAINING SET OF QUESTIONS WITH REFERENCE TO RICARDO'S THEORY ON TRADE. b) Determine the international terms of trade range (ZOPA). c) If the wage rate in Italy is 64/hr, the wage rate in Switzerland is Sfr3.5/hr, and the exchange rate is (1/Sfil, calculate the international commodity terms of trade. d) Calculate the limits to the wage rate in each country. e) Calculate the exchange rate limits. Suppose that international trade between Italy and Switzerland is expanded to include the following three commodities. TABLE 2: Labour Requirements Clothing (CD Fish (F) Cutlery (Cu) Switzerland 10hr pr 2.5hr/unit Shriunit Italy 9hopr Shriunit 6hr/unit f) Determine the trade pattern for all three commodities. Verify that the prices of exported goods are indeed lower in the exporting country. g) Will the trade pattern change if the wage rate in Switzerland rises by 20%? h) Ignoring the change in g) above, will the trade pattern change if the Swiss franc appreciates to 61.3/Sfri? i) Ignoring the changes in both g) and h) above, will the trade pattern change if a transportation charge of 30 minutes /commodity is added? 2. Consider the following information for a three-country, two-good world. TABLE 3: Labour Requirements Fish (F Potatoes (P Poland 3ho/lb Shribu Denmark Iholb 4hr/bu Sweden 2holb 2hr bu Assume that the international terms of trade are Ilb fish : 0.5bu potatoes. a) Is there a basis for trade and why? b) What commodities will each country export and import and why? Are there any commodities that will not be traded and why