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Exam 2: Trade and Technology: The Ricardian Model

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Question 71

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Assume that two countries (Home and Foreign) each produce two goods (corn and wheat) under constant cost production. Home produces 0.5 ton of corn or 1 ton of wheat with a day of labor. Foreign produces 1 ton of corn and 0.5 ton of wheat. Without trade (in autarky) , Home's daily production is 20 tons of wheat and 10 tons of corn. At which international price will Home's gains from trade be largest?

A) 1/2 ton of wheat per ton of corn
B) 1 ton of wheat per ton of corn
C) 1.5 tons of wheat per ton of corn
D) 2 tons of wheat per ton of corn

E) None of the above
F) A) and B)

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Question 72

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In the United States, one worker can produce 10 tons of steel per day or 20 tons of chemicals per day. In the United Kingdom, one worker can produce 5 tons of steel per day or 15 tons of chemicals per day. The United States has the absolute advantage in the production of:

A) steel.
B) chemicals.
C) neither steel nor chemicals.
D) both steel and chemicals.

E) B) and C)
F) All of the above

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Question 73

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(Figure: Home Production and Consumption) The figure gives Home's international trading pattern. Point P is production with trade, and point C is consumption with trade. Which product does Home export?

(Figure: Home Equilibrium with No Trade) Under the condition of no trade, which combinations are NOT attainable?

The Ricardian model employs the concept of alternate uses of economic resources in production. We refer to this technique as:

When a country requires fewer resources to produce a product than other countries, it is said to have a(n) :

In the United States, one worker can produce 10 tons of steel per day or 20 tons of chemicals per day. In the United Kingdom, one worker can produce 5 tons of steel per day or 15 tons of chemicals per day. Which of the following statements is correct?

Trade between two nations is NOT possible if they have:

(Figure: Upperia's Production and Consumption) The graph shows Upperia's international trading pattern. Point P is production with trade, and point C is consumption with trade. Which product does Home import?

When the production possibilities frontier is a straight line, then production occurs under conditions of:

A worker's "real" wage is related to:

In the Ricardian model, wages are equal across industries because:

(Figure: Indifference Curves) What is the opportunity cost of cloth in terms of wheat in this example?

Home has a comparative advantage in wheat, and Foreign has a comparative advantage in cloth. Once trade occurs, Home produces 1,500 bushels of wheat, and Foreign produces 1,000 yards of cloth. The following table shows the amount of wheat that Home is willing to trade to acquire more cloth. If the international price of cloth is 1.5 bushels of wheat per yard, how many bushels of wheat will Home export to Foreign?

(Figure: Upperia's Production and Consumption) The graph shows Upperia's international trading pattern. What is the autarkic relative price of shirts in Upperia?

To complete the model of international trade using the PPF, we must also use the idea of indifference curves. One of these curves represent:

(Figure: Indifference Curves) Which combination of wheat and cloth is represented by point A in the diagram?

Ricardo's theory showed that if nations are allowed to trade freely, the result will be that:

Assume the MPL_t = 5 tennis rackets and MPL_b = 4 baseball bats. If the economy has 100 workers, then the economy can produce:

What is the marginal product of labor?