Suppose you are asked to advise the leaders of Springfield, a small land-locked Asian nation.

Springfield's immediate neighbors are South Korea, Russia, Turkey, India and China. Springfield has a small population, although they have lots of mineral resources and a few very specialized pieces of manufacturing equipment.

The capital labor ratios of each country are listed below.

Country

K/L

Springfield

1

Argentina

1.1

Brazil

1.5

China

.5

India

.25

Russia

1.3

South Africa

.9

South Korea

1.8

Turkey

.7

U.S.A.

2

Use the descriptions of Springfield and its potential trading partners above to answer the following questions.

1.Springfield has large reserves of iron, copper and aluminum for export. Springfield's consumers have a large demand for licorice, wheat, and beer.

A.Which nations would most likely import iron, copper and aluminum from Springfield?

Why? Which nations would most likely export licorice, wheat and beer to Springfield?

Why?

B.Assuming you consider all other countries as one (i.e. consider Springfield and Them), what are the gains and losses from trade for Springfield as a whole, and its relevant sectors (labor, capital, etc.)?

2.The King of Springfield C.M. Burns has recently proposed a bill that would provide open immigration for any people with experience producing clean nuclear power plants, as well as a house and a cash payment based on years of experience. (Assume there is no attempt to produce any nuclear weapons and that the production of nuclear power plant equipment in Springfield is fully endorsed by the UN and relevant intergovernmental agencies.)

A.What benefits is King Burns attempting to gain from this bill? What alternatives could be proposed that would achieve the same goals?

B.Suppose that the Shelbyville a small South Pacific Nation is currently the only exporter of nuclear power plant equipment in the world. Assuming King Burns' bill is successful, describe how international trade patterns would change, who would gain, andwho would lose.

3.A member of Springfield's parliament Helen Lovejoy has recently introduced a bill for discussion that would enact a 30% tariff on licorice from Australia. She claims that this tariff will benefit all of Springfield's citizens (and not just the Barney's Licorice, a major licorice producer in her district).

A.Describe the necessary conditions to make her statement true and the overall welfare effects for the nation, each relevant sector and the entire world.

B.Assuming the necessary conditions are true, what would be the likely reaction from Australia? Describe the potential welfare effects for the nation, relevant sectors and the entire world from Australia's response.

4.Suppose an unknown genius has gifted Springfield with several thousand robots, 1 robot for every 2 citizens. The robots are human-shaped and are three times as productive as humans at menial/low-skilled tasks. The robots need minimal maintenance and consume almost no goods.

A.How would this change the capital labor ratio of Springfield? What will happen to wages and rents because of this change?

B.What are the short run costs and benefits of the robots? What are the long run costs and benefits of the robots?