International Economics Essay Essay

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1. Why did the Mercantilists consider retentions of cherished metals so of import to nation-state edifice? ( 6 points )

Wealth was viewed as synonymous with retentions of cherished metals. Nation-states wished to go affluent and this meant obtaining big retentions of cherished metals. It is besides argued by some that the deficit of mintage constrained the growing of these nation-sates and that cherished metals were required to increase the supply of mintage ( money ) in order for the states to turn.

2. Assume that both the United States and Germany produce beef and computing machine french friess with the undermentioned costs: ( 12 points )

a. What is the chance cost of beef ( B ) and computing machine french friess ( C ) in each state?

In the United States: the chance cost of one unit of beef is 2 french friess ; the chance cost of one bit is 1/2 unit of beef. In Germany: the chance cost of one unit of beef is 4 french friess ; the chance cost of one bit is 1/4 unit of beef. B. In which trade good does the United States have a comparative cost advantage? What about Germany?

The United States has a comparative cost advantage in beef with regard to Germany. while Germany has a comparative cost advantage in computing machine french friess.

c. What is the scope for reciprocally good trade between the United States and Germany for each computing machine bit traded? The scope for reciprocally good trade between the United States and Germany for each unit of beef that the United States exports is: 2C & lt ; 1B & lt ; 4C

d. How much would the United States and Germany gain if 1 unit of beef is exchanged for 3 french friess? Both the United States and Germany would derive 1 bit for each unit of beef traded.

3. “If U. S. productiveness growing does non maintain up with that of its trading spouses. the United States will rapidly lose its international fight and non be able to export any merchandises. and its criterion of life will fall. ” Critically measure this statement in visible radiation of what you have learned in chapter 3 of the text edition. ( 10 points )

This statement could be true if trade was based on absolute advantage. However. since trade can take topographic point on the footing of comparative advantage. what counts is comparative cost differences. Consequently a state can be less efficient or go less efficient in all goods and yet once more from trade every bit long as there are comparative cost differences in autarchy. Therefore. different rates of productiveness growing may alter what a state exports. but it is improbable that it would of all time take away the footing for trade. its ability to expert.

4. The following tabular array shows the figure of yearss of labour required to bring forth a unit of fabrics and cars in the United Kingdom and the United States: ( 12 points )

United Kingdom
3 yearss
6 yearss
United States
2 yearss
5 yearss

a. Calculate the figure of units of fabrics and cars that can be produced from 1 twenty-four hours of labour in each state.

In the United Kingdom one twenty-four hours of labour can bring forth 1/3 of a unit of fabrics and 1/6 of a unit of cars. In the United States. one twenty-four hours of labour can bring forth ? of a unit of fabrics and 1/5 of a unit of cars. B. Suppose that the United States has 1. 000 yearss of labour available. Construct the production-possibilities frontier for the United States.

500 U. S

c. Construct the U. S. consumption-possibilities frontier with trade if the footings of trade are 1 car: 2 units of fabrics.

500 fabrics U. S

d. Select a pre-trade ingestion point for the United States. and bespeak how trade can give a ingestion point that gives the United States greater ingestion of both goods.

500 fabrics U. S

5. In the old inquiry. say that the United States ever wants to devour cars and fabrics at the ratio of 1 car to 10 fabrics. What measure of each good would the United States consume in autarchy? What combination would the United States consume with trade and complete specialisation? What would be the additions from trade? ( 10 points )

In autarchy. the production ( and ingestion ) of fabrics and cars will use all the available 1000 yearss of labour. Thus. with T = figure of units of fabrics produced and A = figure of cars produced. 1000 = ( 2 yearss / unit ) T + ( 5 yearss / unit ) A. The ingestion demand is that 10 units of fabrics be consumed for every unit of cars. Hence. entire fabric production is equal to ( 10 ) ( entire car production ) . 10A therefore. given the available labour. and replacing 10A for T.

1000 = ( 2 ) ( 10A ) + 5 A
A= 40 units

If A = 40 units. so textile production and trade. textile production equal 500 units. Consumption of fabrics ( CT ) is equal to textile production minus the fabric exports used to ask car imports. and car imports are equal to car ingestion ( CA ) . With the international footings of trade of 1A:2T. car imports = ( 1A/2T ) ( exports of fabrics ) = ( 1A/2T ) * ( textile production – fabric ingestion ) . By the demand premise. ingestion of car is besides equal to ( 1/10 ) ( textile concumption ) . Hence. CA = ( 1/2 ) ( 500 –CT ) and CA = ( 1/10 ) ( CT ) . Therefore.

( 1/2 ) ( 500- CT ) = ( 1/10 ) ( CT )
250 – ( 1/2 ) ( CT ) = ( 1/10 ) ( CT )
0. 6CT = 250
CT = 416 2/3 units

With Ct = 416 2/3 units. CA therefore peers 41 2/3 Unitts. Because of specialisation and trade. the united States had gained 16 2/3 Unit of measurements of fabrics ( 416 2/3 – 400 ) and 1 2/3 ( 41 2/3 – 40 ) in comparing with autarky state of affairs.

Another method of geting at these consequences is to use the equations for the PPF and for the ingestion form. In autarky the PPF equation is T = 500 – 2 ? A. and the ingestion equation is CT = 10CA. Solving the two equations for the two unknowns outputs A = CA = 40 and T = CT = 400. With trade. the equations to be utilized are for the consumption- possibilities frontier with trade has the equation T = 500 – 2A. When this equation is put with the ingestion equation CT = 10 CA and the two equation are solved for two terra incognitas. the equilibrium consequences are

A = CA = 41 2/3
T = CT = 416 2/3

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