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## Question:

This is an individual assignment. It is marked out of 40 and contributes 40% to your overal assessment for this subject.
Due date: 9 September 2018, 23:00. Late submission will incur a 5% penalty each day after the due date. Submission will not be graded if the assignment is 5 days overdue.Attempt all the questions. The assignment should be typed and submitted electronically in pdf format as per details in the LMS.

Question 1: Absolute and Comparative Advantage Consider the following hypothetical situation, described in the table, showing unit labour requirements: Butter Cloth

a. In which commodity does Home have an absolute advantage? In which commodity does Foreign have an absolute advantage
b. How much will Home gain if it trades 5 units of butter for 3 units of cloth? How much would Foreign gain from the same trade
c. How much will Home gain if it trades 5 units of butter for 6 units of cloth? How much would Foreign gain from the same trade

Question 2: The Ricardian Model
Consider the following hypothetical situation, described in the table, showing unit labour requirements:Motorbikes Skateboards

HOME has 1000 hours of labour available. FOREIGN has 1200 hours of labour available.
a. Draw the production possibility frontier for Home and Foreign.
b. In the absence of trade, what is the relative price of motorbikes in terms of skateboards in each country
c. Trade is believed to make each country better off by enlarging the range of consumption choices available to residents/consumers. Compare the consumption possibilities available to Home and Foreign consumers in the closed economy and, in the open/trading economy cases.Graph the expanded consumption opportunities. The relative price of skateboards in terms of motorbikes under free trade is given and equal to 4/5.

Question 3: The Ricardian Model
Suppose two economies H and F produce two goods, X and Y, with only one input: labour. Production technology implies that unit labour requirements are given in the following table:

Suppose that H has 2400 units of labour and F has 1800 units of labour.
a. What is the pattern of absolute advantage? Of comparative advantage Give a brief explanation.
b. Derive the Production Possibilities Frontier (PPF) for H and F. What is the autarky equilibrium price ratio in each country
c. What is the range of feasible equilibrium world price ratios
d. Suppose these countries trade with each other at some feasible world price ratio. Which country exports good X Why

### Cite This Work

[Accessed 20 April 2021].

My Assignment Help. International Trade [Internet]. My Assignment Help. 2021 [cited 20 April 2021]. Available from: https://myassignmenthelp.com/free-samples/eco3itr-international-trade-for-advantage/hypothetical-situation.html.

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