International Economics

Question 1. The country of Uncoordinated requires 5 units of labor to produce one unit of corn and 10 

units of labor to produce one unit of housing.  Uncoordinated has 100 total units of labor 

available.  Uncoordinated has Leontief preferences (right-angle indifference curves) with the bend at equal shares of housing and corn. The country of Gifted requires 1 unit of labor to produce one unit of corn and 1 unit of labor to produce one unit of housing.  Gifted has 10 units of labor available and Leontief preferences (right-angle 

indifference curves) with the bend at 2 units of corn for every unit 

of housing.

 The country of Gifted requires 1 unit of labor to produce one unit of corn and 1 unit of labor to produce one unit of housing.  Gifted has 10 units of labor available and Leontief preferences (right-angle indifference curves) with the bend at 2 units of corn for every unit of housing.

a)

Find the autarky levels of output for both countries.

b)

Identify which country has the comparative advantage in the production of each of the 

goods.

c)

Identify which country has the absolute advantage in the production of each of the 

goods.

d)

Develop a scheme of international trade that leaves both countries better off.  In other 

words, show how specialization and trade can generate higher levels of

consumption.

e)

Is the scheme developed in (d) the only possible welfare improving trade outcome?  

Why or why not?

 

2)

How would a vacation to Disneyland by Russian tourists be classified in by the BOP 

accounts? What if the same vacation were taken by U.S. tourists?

1)

Explain how the Stolper-Samuelson theorem indicates that free trade will (likely) worsen income inequality in the US,but (likely) narrow it for Mexico.

2)

Explain how international factor flows (capital or labor) can substitute for international trade.

3)

Show the effects on US welfare from each of the following events.

a. Imposition of a tariff on a small, perfectly competitive market

b. Imposition of a tariff on a small, imperfectly competitive market

c. Imposition o

f a tariff on a large, perfectly competitive market

4)

Show the effects on US welfare from each of the following events.

a.

Imposition of a quota on a small, perfectly competitive market

b. Imposition of a quota on a small, imperfectly competitive market

5)

If th

e US is a large importing country and imposes a tariff on the import of a good, what will 

the welfare effect on the exporting country be?

 

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