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Assignment 1 - International Econs

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EC 3341 International Economics I Fall 2012 National University of Singapore Assignment 1: Labor Productivity and Comparative Advantage: The Ricardian Model

The due date for this assignment is 11:59am, September 3 2012 (submission in hardcopy to your respective tutor) 1. Home has 5 units of labor available. Each labor can produce either 4 cars or 3 TVs. (a) Graph Home’ production possibility frontier (PPF). s (b) What is the opportunity cost of cars in terms of TVs? (c) In the absence of trade, what would the price of cars in terms of TVs be? Why?

2. Home is as described in Problem 1. There is now also another country, Foreign, with a labor force of 5. Each labor in Foreign can produce either 3 cars or 4 TVs. And assume world relative demand takes the following form: Demand for cars/demand for TVs=price of TVs/price of cars. (a) Construct the world relative supple curve. (b) Graph the relative demand curve. (c) What is the equilibrium relative price of cars? (d) What good will each country specialize in? and Why? (e) Describe the pattern of trade.

3. Assume that the number of labor doubles in Home. (a) What happens to the Home PPF? (b) What is the no-trade equilibrium relative price of cars (in terms of TVs) in Home? (c) With free trade, construct the new world relative supply curve (d) What is the new equilibrium relative price of cars? (e) What is the new pattern of production and trade?

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