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Harmonized System
Codes (HS Codes)
Product Description
920300
Keyboard pipe organs; harmoniums and similar
IN-CLASS PROBLEMS
1. What determines the pattern of international trade between two countries in the Ricardian model?
2. Using the Ricardian model, explain why American workers receive higher wages in the production
of automobiles than Chinese workers.
3. Why is the production possibilities frontier a straight line in the Ricardian model?
34
4. Refer to the following table and assume that the total labor supply in Taiwan is 4 and the total labor
supply in Vietnam is 8.
Taiwan
Vietnam
Absolute
Advantage
Number of
telephones produced
per hour
10
5
?
Number of radios
produced per hour
50
10
?
Comparative
advantage
?
?
a. What is the opportunity cost of 1 unit of telephones in terms of radios in Taiwan? In Vietnam?
Answer: See the following table.
Opportunity Cost of
1 Telephone (in Terms
1 Radio (in Terms of Units
35
Taiwan
5
Vietnam
2
b. Determine whether each of the following statements is true or false. Provide a brief explanation
of why it is true or false.
i. Taiwan has an absolute advantage in the production of both telephones and radios.
ii. Vietnam has a comparative advantage in the production of telephones.
iii. One possible production combination for Vietnam is 40 units of telephone and 80 units of
radio per hour.
c. If the two countries engage in international trade, what will Taiwan produce and how many?
Answer: Because Vietnam has the lower opportunity cost in the production of telephones and
d. What is the real wage in Taiwan in terms of radio? What is the real wage in Vietnam in terms of
telephone?
in Vietnam in terms of telephone is
e. Will Taiwan and Vietnam trade if the international relative price of telephone is 3? Briefly
explain why or why not.
international relative price of telephone is lower than its no-trade equilibrium price.
5. Refer to the following table in answering the questions that follow. Assume each country has 100
laborers.
Australia
United
States
Absolute
Advantage
Pounds of beef
produced per hour
17
35
?
Bushels of wheat
51
105
?
37
produced per hour
Comparative
advantage
?
?
a. Which country has an absolute advantage in the production of wheat?
b. Using the Ricardian model, would trade between Australia and the United States be mutually
beneficial? Briefly explain why or why not.
Opportunity Cost of
1 Pound of Beef
(in Terms of
Bushels of Wheat
Given Up)
1 Bushel of
Wheat (in Terms
of Pounds of Beef
Given Up)
Australia
3
38
United States
3
6. Would your answers to Problem 5 be different if a worker in the United States became more
productive and could produce 70 pounds of beef or 140 bushels of wheat per hour?
Answer: With the increase in productivity in the United States, the two countries now have
differences in opportunity costs and will find trade mutually beneficial.
Opportunity Cost of
1 Pound of Beef
(in Terms of
Bushels of Wheat
Given Up)
1 Bushel of
Wheat (in Terms
of Pounds of Beef
Given Up)
Australia
3
United States
2
7. Answer the questions below using the information given in the following table.
China
France
Pairs of boots produced per
hour
4
8
Bottles of wine produced per
2
16
39
hour
Comparative advantage
?
?
a. Which country has a comparative advantage in the production of boots?
2
BW B W
b. Provide the range of the international relative price of wine at which the two countries would
trade.
Answer: The range of the international relative price of wine at which the two countries would
WB
c. Suppose that researchers in France discover a new technology that doubles the marginal product
of labor in boots. Would China and France continue to trade? Briefly explain why.
Answer: Although the new technology would allow workers in France to be more productive,
8. Some Americans fear that as countries such as China and India become more productive in
industries such as computers and computer programming, once dominated by the United States, the
wages of workers in the United States will fall. Should U.S. workers fear foreign competition for this
reason according to the Ricardian model? Briefly explain why or why not.
40
Answer: Suppose the initial productivity in China and the United States is given by the first two
Initial
New
China
United States
China
United States
Numbers of
programs produced
per hour
1
10
5
10
Bushels wheat
produced per hour
10
50
10
50
Initial Opportunity Cost of
1 Number of Programs (in
Terms of Bushels of Wheat
Given Up)
1 Bushel of Wheat (in
Terms of Numbers of
Program Given Up)
China
10
1/10
United States
5
1/5
Suppose that the world relative price of computer programs is 8. Then the initial U.S. wage is given
41
by
Let’s assume that China becomes more productive in producing computer programs although
everything else remains constant, as given by the last two columns on the right in the above table.
Now China has a comparative advantage in producing computer programs.
New Opportunity Cost of
1 Number of Programs (in
Terms of Bushels of Wheat
Given Up)
1 Bushel of Wheat (in
Terms of Numbers of
Program Given Up)
China
2
United States
5
Suppose the new world relative price of computer program is 4
42
9. Refer to the following table. Assume there are two workers in Mexico and three workers in the
United States.
Mexico
Labor = 2
United States
Labor = 3
Bottles of tequila produced per hour
7
5
Pounds of rice produced per hour
5
10
Comparative advantage
?
?
a. Determine the pre-trade relative price of tequila in Mexico and the United States.
Answer: The pre-trade relative price of tequila in Mexico and the United States are
US US
b. Given your answer in part (a), which country has a comparative advantage in the production of
rice?
43
c. What is the lowest international relative price of tequila Mexico is willing to accept to engage in
trade with the United States? Briefly explain why.
5
7
10. Use the information provided in Problem 9, but suppose the number of laborers in the United States
is 300, while the number of laborers in Mexico remains the same at 2.
a. Determine the terms of trade for the United States.
b. Which country gains more from trade? Briefly explain why.
11. Provide an example of how the mercantilist school of thought continues to exist today.
12. Suppose there are two countries producing two goods using only labor. Refer to the following table
to answer the questions.
44
Italy
France
Absolute
Advantage
Pairs of shoes produced
per hour
6
3
?
Bottles of wine produced
per hour
2
1
?
Comparative advantage
?
?
a. Which country has absolute advantage in the production of shoes? Wine?
b. Which country has a comparative advantage in the production of shoes? Wine?
c. Does Italy gain from trading with France? Briefly explain why or why not using the Ricardian
model.
