Discussion :
1. Problem 4, page 46 in YY. Following part c) of this question, also indicate how the change in country A's labor coefficients would impact the ratio of wages for the two countries. Explain why.
Q: Assume that La = 1000; ALx = 10 ; A ly= 20; L b= 1000; B lx= 20 and b ly=10
a. sketch and label each countries production possibilities frontier
b. which country has comparative advantage in which good, and why? Would trade between country A and country B be mutually beneficial? Why? Or Why not?
Now suppose tht researchers in country A discover a way to produce both good X and good Y using only half as much labor as before , so now alx=5 and a ly=10. Sketch and label the new PPF. Which country has comparative advantage in which goods and why? Would trade between Country A and Country B be mutually beneficial? Why or why not?
2. Problem 1, page 72 in YY.
Q: Assume that tastes and technology are identical in China and Japan. Assume China is labor abundant and Japan is capital abundant. Assume that production in of clothing is labor intensive and production of automobiles is capital intensive.
a. sketch and label the PPF for China and Japan. Explain briefly why you drew
b. In autarky, which contry has a comparative advantage in production of which good? Show how you know this or why you don't.
c.What does the Heckscher-Ohlin thermo predict would happen if trade were opened between China and Japan?
2a. Under Increasing costs, will two countries find it beneficial to trade if they have:
a. Identical production possibilities and different tastes?
b. Identical tastes and different production possibilities?
c. identical tastes and identical production possibilities?
3. 1. Problem 1, page 107 of YY.
Q:Suppose that Px= (A lx) (w) + (a Kx) (r) =60 (w) +40 ( r) and that Py= A ly (w ) +A Ky (r )=75 (w) +25 ( r) (WHAT??)
a. If Px=Py+100, what are the equilibrium values for the wage rate and the rental rate?
b. If Py rose to 120 and the input coefficient didn't change, what would be the new equilibrium values of "w" and "r"?
d. After the change in part "b" would workers' wages buy more or less good X? more or less good "Y"? Have real wages risen or fallen? The real rental rate risen or fallen?
e. Of what trade theorem is your answer to part "c" an example of this?
2. a) Problem 3, page 107, part a) ONLY.
Q: This question refers back to Problem #1 Page 72 original information dealing with China and Japan
a. If both factors of production are mobile between industries, how would the following groups feel about opening trade: capital owners in China, labor in China, capital owners in Japan and labor in Japan?
b) Problem 8, page 108 of YY.
Q: The labor-abundant countries of Asia have experienced rapidly rising wages since those economies liberalized their international trade policies. Does this observation match the predictions of international trade theory? Explain.