Two countries, Haiti and the Dominican Republic, produce fruits and timber. Each island has a labor force of 1200 and the monthly productivity of each worker is as follow
Basket of fruit Board feet of timber
Haiti 10 5
Dominican Republic 30 10
a. Which county has an absolute advantage in the production of fruit? Timber?
b. Which country has a comparative advantage in the production of fruit? Timber?
c. Sketch the production possibility frontier ( PPF) of both countries
d. Both countries want to produce an equal amount of baskets of fruit and feet of timber. How should they allocate their workers to the two sectors?
e. Can specialization and trade move both countries beyond their PPF?
Practicum 2
Let us use the Heckscher-Ohlin model to our countries of Leinster and Saxony, which produce and consume bread and telephones. You may assume that the only two factors of production are labor and land.
a. If Leinster has 8 million acres of land and 2 million laborers, while Saxony has 2 million acres of land and 400,000 laborers, which country is "labor abundant"? Which country is "land abundant"? Explain.
b. If labor accounts for 80 percent of the total cost of producing telephones but only 20 percent of the total cost of producing bread, which country is more likely to export telephones? Which country is more likely to export bread? Why?
Practicum 3
The demand and supply curves of the market for DVD at the local (US) market are as follow
P = 30 - Qd/2 and P= -1.5 + Qs/4
a. Find the equilibrium price and the equilibrium quantity when there is no international trade
b. What are the equilibrium quantities when the nations trade freely at price of $ 15. Explain your answer
c. Based on your response on (c) what is the national gain?
d. What happens in the short run to the equilibrium market of DVD if the price of DVR (a substitute to DVD) doubles? Does it affect the price of DVD?
e. What would happen in the long run to the equilibrium market? Does it affect the price of DVD?