04 Jun EC 481/581 Winter 2015 Problem Set 1
Question
EC 481/581
Winter 2015
Problem Set 1
Due Date: Wednesday, January 14
PART A (15 points): Net-work
Go to the following website: http://strategis.ic.gc.ca/sc_mrkti/tdst/engdoc/tr_homep.html
It reports detailed international trade statistics for the United States and Canada.
Look for trade data under the tab Search By Product. Using the drop-down menus,
request data on total imports in year 2013 by the U.S. from the top ten trading
partners in the product category: HS 8707 – Bodies for Motor Vehicles. To pick this
product, under the Product Options menu choose the Browse List of Products
option and select the category 87- Motor Vehicles, Trailers, Bicycles, Motorcycles
and Other Similar Vehicles. Then hit the button View Products, and from all the
records retrieved, select the product category 8707 – Bodies for Motor Vehicles and
click Add to Selected Products. Once you have completed the query hit Run Report.
List the top ten countries selling bodies of motor vehicles to the U.S. For each
country, state the reason(s) why you believe that country exports this product to the
United States.
PART B (55 points): Ricardian Model
1. Assume that two countries – Home and Foreign – produce two goods: TVs and
cars. Home has a total supply of labor hours of 100 and Foreign has a total supply of
labor hours of 200. Use the information below to answer the following questions:
a. (5 points) What is the marginal product of labor for TVs and cars in the Home
country? Graph the production possibility frontier for the Home country (put TVs
on the x-axis). What is the no-trade relative price of TVs at Home?
b. (5 points) What is the marginal product of labor for TVs and cars in the Foreign
country? Graph the production possibility frontier for the Foreign country (put
TVs on the x-axis). What is the no-trade relative price of TVs in Foreign?
c. (5 points) Which country has comparative advantage in the production of TVs?
Which country has absolute advantage in the production of cars?
d. (5 points) Suppose the world price of TVs in the trade equilibrium is PTV/PC = 1.
Which good will each country export? Briefly explain.
e. (5 points) In the trade equilibrium, what is the real wage in Home in terms of TVs
and in terms of cars? How do these values compare with the real wage in terms of
either good in the no-trade equilibrium?
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