Total: 5 points 1 point for correct answer, or very minor errors (e.g., correct method, wrong answer due to slight miscalculation) 0.5 point for wrong answer, but on the right track O point for no answer and for wrong answers that are way off track NOTE: You can either write your answers in this questionnaire, or use a separate sheet. Please show all calculations, if necessary. Lebanon and Austria produce both paper and almonds. The amount of labor required to produce 1 unit of each good is given by the table below: Lebanon Austria Amount of Labor to Produce Amount of Labor to Produce 1 metric ton of Paper 1 lb. of Almonds 5 8 4 12 Suppose each country has 6000 workers. 1. Which country has comparative advantage in paper production? In almond production? What is the expected pattern of trade? Why? Show your calculations. 2. Assume identical DD diagrams for both countries. Draw each countries' PPF and DD based on your answers in Question 1, then use the diagrams to show the following: a. Autarky production levels (mark as point A) and price ratios b. Post-trade production (point B) and consumption levels (point C) c. New world PPF and world price ratio (show as dashed line) d. Export and import levels for each country You may follow the examples in the textbook and in class. Your PPF's do not need to be 100% accurate. Figure 1 Lebanon Austria 3. Suppose Lebanon is a labor-abundant country, while Austria is a capital-abundant country. Almond production is labor-intensive, while paper production is capital- intensive. Given this information, what is the expected pattern of trade? Make sure to state the pattern completely (what each country will specialize in, what they will export, what they will import, as we stated in class). 4. Assume identical DD diagrams for both countries. Draw each countries' PPF (curved) and DD given the information in question 3, then use the diagrams to show the following: a. Autarky production levels (mark as point A) and price ratios b. Post-trade production (point B) and consumption levels (point C) c. New world price ratio (show as dashed tangent line) d. Export and import levels for each country You may follow the examples in the textbook and in class (i.e., Heckscher-Ohlin Model). Your PPF's do not need to be exact (we don't have the numbers anyway), it just needs to show each country's bias toward the appropriate good. Figure 2 Lebanon Austria 5. Given the information in question 3 and the results in question 4, who are the projected winners and losers in each country if trade occurs? Use the Stolper-Samuelson Theorem to explain your answer, then provide a scenario in which a trade agreement between Lebanon and Austria might be blocked based on your answer. 6. Optional Bonus for 0.5 points. Going back to question 1, which country has absolute advantage in producing almonds? What about for paper production? Can a pattern of trade be established using absolute advantage in the context of this problem?