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##### The following table shows the hour

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Question 1: The following table shows the hours of labor required to produce 1 unit of each commodity in each country;Wheat Clothing;United States 3hr 9 hr;United Kingdom 4hr 4 hr;a. Which country has an absolute advantage in Wheat? Clothing? Comparative Advantage in Wheat? Clothing? Explain. (8 points);b. If trade takes place between the UK and the US at a barter price of 1 clothing for 2 Wheat, why does each country gain from trade? (5 points);c. Let us suppose that UK has 500 hours of labor available 300 of which are used to produce clothing and the remaining 200 to produce wheat. What is the output of each of these goods in autarky? (5 points) Assume that this is Autarky equilibrium;d. Let us suppose that UK enters into trade with the US and exports 40 units of Clothing at the above terms of term (1C = 2W), what will be the production, consumption, imports and exports of UK? By how much has the UK been able to increase its consumption of the two goods? (10 points) Assume that complete specialization occurs.;e. If the US has 600 hours of labor available and uses 330 hours to produce wheat and the remaining 270 to produce clothing, what is its output of wheat and clothing? (5 points) Assume that this is Autarky equilibrium;f. If the US trades with UK (imports 40 units of clothing at the TOT of 1C=2W), what will be the output, consumption, exports and imports of the two goods? (10 points);Assume that complete specialization occurs.;g. Draw the PPF and Consumption possibility frontier and show the trade triangle.(10 points)

Paper#26479 | Written in 18-Jul-2015

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