BA 187: International Trade. Homework #3 Answers: Gains in the Standard Trade Model. 2. Opening trade raises relative price of Good X. C 2. 3. Prod’n fixed at point A 1 but new consumption at C 2 with higher level of utility, U 2 . This reflects gains to exchange only. U 2.
Homework #3 Answers:
Gains in the Standard Trade Model
3. Prod’n fixed at point A1 but new consumption at C2 with
higher level of utility, U2. This reflects gains to exchange only.
1. “The inability of factors to move from one use to another
will take away any possible gains from trade.” False
1. In autarky, produce & consume at pt. A1 with utility level U1.
3. Differences in prod’n and utility offset one another so
relative product prices are the same in both countries.
2. “So long as both countries differ in both tastes and technologies, mutual gains from trade are always possible.”
1. Home & Foreign PPF’s and utility functions differ.
4. RESULT? No gains from trade, no trade occurs.
2. Home & Foreign PPF’s differ due to differences in
technology or factor endowments.
3. Autarky Equilibrium at AH and AF
4. Opening trade changes relative prices
5. New equilib. consumption at common C*.
but each country has different prod’n ;point.
3. Explain why the ROW is becoming Americanized at the
same time as the U.S. is becoming globalized.
6. RESULT? Countries look more
like one another in consumption.
4. “Export-oriented growth is an undesirable event from the
point of view of the home country because it reduces our
terms of trade and so lowers our well-being as a nation.”
Relative Price of X
Relative Quantity of X
(qX+ q*X)/(qY + q*Y)
4. “Export-oriented growth is an undesirable event from the point of view of the home country because it reduces our terms of trade and so lowers our well-being as a nation.”False