1. The Ricardian and the Specific Factors Models
a. Indicate whether you AGREE or DISAGREE (underline your choice) with following statements-
A country makes overall gains from trade (compared to no trade) only when
(1) All residents (cattle-owners, landowners, unskilled workers) gain from trade.
AGREE DISAGREE
(2) Majority of residents (cattle-owners, landowners, unskilled workers) gain from trade.
AGREE DISAGREE
(3) All resident workers gain from trade.
(4) AGREE DISAGREE
b. Consider the framework outlined in question 1. Carefully draw the import demand and export supply curves for corn and show how relative price of corn is determined when Mexico trades with U.S.
C. Consider the framework outlined in question 2. Suppose that Mexico and the U.S. have comparable amounts of land and unskilled labor but, the U.S has more cattle. Carefully draw the relative supply of corn in Mexico and the U.S. and show how the autarky prices compare in two countries.