You are given the following Classical-type table indicating the number of days of labor input needed to make one unit of output of each of the five commodities in each of the Two countries. Assume that the wage rate in England is £20 per day, that the wage rate in Portugal is 40 euros per day, and that the fixed exchange rate is £1 = 3 euros. $\begin{array}{llllll} &\text { Good A } &\text { Good B } & \text { Good C }& \text { Good D } &\text { Good E }\\ \hline\text { England } & 1 \text { day } & 5 \text { days } & 2 \text { days } & 1 \text { day } & 4 \text { days } \\ \text { Portugal } & 4 \text { days } & 4 \text { days } & 1 \text { day } & 2 \text { days } & 5 \text { days } \end{array}$ With the given information, what will be the trade pattern if the two countries engage in Trade?

A) England will export good A and import goods B, C, D, and E. B) England will export goods A and D and import goods B, C, and E. C) England will export goods A, B, and E and import goods C and D. D) England will export goods A, B, D, and E and import good C. A) England will export good A and import goods B, C, D, and E. B) England will export goods A and D and import goods B, C, and E. C) England will export goods A, B, and E and import goods C and D. D) England will export goods A, B, D, and E and import good C. B

Given the following Classical-type table showing the number of days of labor input required to obtain one unit of output of each of the two commodities in each of the three countries: $\begin{array}{lcc} &\underline{\text { wine}}&\underline{\text { clothing} }\\ \text { Denmark } & 4 \text { days } & 6 \text { days } \\ \text { Germany } & 3 \text { days } & 3 \text { days } \\ \text { Portugal } & 5 \text { days } & 9 \text { days } \end{array}$ Which one of the following statements is correct?

A) If trade is taking place, Germany will always be exporting wine. B) If trade is taking place, Denmark will always be exporting clothing. C) If trade is taking place, Portugal will always be importing clothing. D) If trade is taking place and the terms of trade are 1 clothing:1.6 wine, Germany will be Exporting clothing and Denmark and Portugal will be importing clothing. A) If trade is taking place, Germany will always be exporting wine. B) If trade is taking place, Denmark will always be exporting clothing. C) If trade is taking place, Portugal will always be importing clothing. D) If trade is taking place and the terms of trade are 1 clothing:1.6 wine, Germany will be Exporting clothing and Denmark and Portugal will be importing clothing.

Given the following Ricardo-type table showing the amount of labor input required to produce one unit of output of each of the two goods in each of the two countries: $\begin{array}{lll} &\underline{\text { Shirts }}&\underline{\text { Machines }}\\ \text { France } & 3 \text { days } & 5 \text { days } \\ \text { Germany } & 2 \text { days } & 4 \text { days } \end{array}$ If the wage rate in France is €60 per day (i.e., 60 euros per day), what is the upper limit to the wage rate per day in Germany (which also uses the euro) that is compatible with two-way trade between the countries?

A) €40 B) €48 C) €75 D) €90 A) €40 B) €48 C) €75 D) €90

Given the following Ricardo-type table showing the amount of labor input required to produce one unit of output of each of the two goods in each of the two countries: $\begin{array} { l l l } &\underline{ \text { Wheat} } &\underline{ \text { Clothing} } \\ \text { United Kingdom } & 6 \text { days } & 5 \text { days } \\ \text { United States } & 4 \text { days } & 3 \text { days } \end{array}$ Suppose that the U.S. wage rate is $60 per day and that the exchange rate is $2 = £1 (or £0.5 = $1). In this situation, the lower limit for the U.K. wage rate in order to have two-way trade would be __________ per day.

A) £18 B) £20 C) £45 D) £50 A) £18 B) £20 C) £45 D) £50

Exam 4: Extensions and Tests of the Classical Model of Trade

In the table in Question #19 above, when trade is taking place among the three countries, will always be exporting wheat and will always be exporting clothing.

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Question 1

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In the context of the Classical (Ricardo) model, explain, for each of the following two statements, why the statement is either TRUE or FALSE. (a) "If country A can produce all goods with less labor time per unit of output than can country B, then there can be no reason for country A to trade with country B - country A would always maximize its own welfare by satisfying its consumption desires for all goods from its own production." (b) "If country I's workers have greater productivity in all industries than country II's workers, then workers in country I will be paid a higher wage rate than workers in country II."

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(a) This statement is FALSE in the context of the Classical (Ricardo) model. According to the theory of comparative advantage, even if country A can produce all goods with less labor time per unit of output than country B, there can still be gains from trade. This is because each country has a comparative advantage in producing certain goods, meaning they can produce those goods at a lower opportunity cost. By specializing in the production of goods in which they have a comparative advantage and trading with each other, both countries can increase their overall consumption and welfare.

(b) This statement is also FALSE in the context of the Classical (Ricardo) model. While it is true that greater productivity in all industries could lead to higher wages for workers in country I compared to country II, the Classical model also considers the role of relative factor abundance. If country I has a higher capital-to-labor ratio than country II, then the wages in country I may not necessarily be higher, as the return to capital would also be higher in country I. Therefore, the wage rate in each country will depend on a combination of productivity and factor abundance, rather than productivity alone.

You are given the following Classical-type table indicating the number of days of labor input needed to make one unit of output of each of the five commodities in each of the Two countries. Assume that the wage rate in England is £20 per day, that the wage rate in Portugal is 40 euros per day, and that the fixed exchange rate is £1 = 3 euros. Good A Good B Good C Good D Good E England 1 day 5 days 2 days 1 day 4 days Portugal 4 days 4 days 1 day 2 days 5 days With the given information, what will be the trade pattern if the two countries engage in Trade?

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Question 3

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Given the following Classical-type table showing the number of days of labor input required to obtain one unit of output of each of the two commodities in each of the three countries: Denmark 4 days 6 days Germany 3 days 3 days Portugal 5 days 9 days Which one of the following statements is correct?

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Question 4

In the Dornbusch-Fischer-Samuelson model of Question #24 above, a shift in tastes and Preferences towards home country goods will cause the schedule to pivot .

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Question 5

In the monetized Classical model, if trade is not balanced, the international terms of trade will deteriorate for the country with the trade deficit. Explain why this is so.

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Question 6

In the Dornbusch-Fischer-Samuelson model of Question #24 above, a rise in labor productivity in the home country would cause real national income to in the home country and in the foreign country.

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Question 7

In Question #15 above, if the U.S. wage rate is $40 per day and the exchange rate is £1 = $1, what is the upper limit to the wage rate in the United Kingdom that is consistent with Two-way trade between the countries?

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Question 8

(a) Explain the Dornbusch-Fischer-Samuelson (DFS) model of Classical-type trade between two countries in a very large number of goods. Be sure to describe why each curve slopes as it does, and indicate the trading pattern at the equilibrium position. (b) Now suppose that, from your equilibrium position in part (a) above, there is a uniform improvement in labor productivity in one of the two countries in all industries. (You can choose either country.) Illustrate and explain what happens to the trading pattern and to relative wage rates. Then explain the impact of the productivity improvement on real income in each country.

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Question 9

In the Dornbusch-Fischer-Samuelson graph in Question #24 above, a good that is located On the horizontal axis to the left of the point directly below the intersection of the A curve With the C curve will be exported by the country, and, for this good, .

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Question 10

It is common to read statements to the effect that domestic inflation or production cost increases hinder our ability to export and also stimulate imports. Is this consistent with the Classical view of international trade? What effects would such an event have on the overall economy according to Classical thinking?

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Question 11

In the basic Classical model, only the limits to the international terms of trade can be specified. If the two country-two commodity model is monetized using an exchange rate and a wage rate for each country, the international terms of trade are implicitly specified. Explain why this is so.

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Question 12

Given the following Ricardo-type table showing the amount of labor input required to produce one unit of output of each of the two goods in each of the two countries: France 3 days 5 days Germany 2 days 4 days If the wage rate in France is €60 per day (i.e., 60 euros per day), what is the upper limit to the wage rate per day in Germany (which also uses the euro) that is compatible with two-way trade between the countries?

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Question 13

Suppose that the labor requirements per unit of output in each of the two industries in Each of three countries are as follows: Spain 2 days 3 days France 2 days 2 days United States 1 day 3 days In this situation, with an international terms of trade of 1 cloth:2 wheat (or 1 wheat:½ cloth), would export cloth and import wheat; if the terms of trade were, instead, 1 wheat:¾ cloth (or 1 cloth:1 $Suppose that the labor requirements per unit of output in each of the two industries in Each of three countries are as follows: \begin{array} { l l l } & \underline{\text { Wheat }} & \underline{\text { Cloth} } \\\\ \text { Spain } & \text { 2 days } & \text { 3 days } \\ \text { France } & \text { 2 days } & \text { 2 days } \\ \text { United States } & \text { 1 day } & \text { 3 days } \end{array} In this situation, with an international terms of trade of 1 cloth:2 wheat (or 1 wheat:½ cloth), would export cloth and import wheat; if the terms of trade were, instead, 1 wheat:¾ cloth (or 1 cloth:1 wheat), would export cloth and import wheat.$ wheat), would export cloth and import wheat.

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Question 14

In the context of the Classical/Ricardo model, suppose that, in an industry X, the Productivity of U.S. workers is three times the productivity of Chinese workers. At the same time, suppose that the wage rate paid to Chinese workers is 20% of the wage rate paid to U.S. workers. In this situation, the unit labor cost of producing good X would be in China than in the United States and therefore, in this two-country Classical/Ricardo context, .

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Question 15

In a two-country Classical model of trade with many commodities, briefly explain what would happen to the structure of trade in each of the following cases:(a) an increase in wages in one country; (b) a change in the exchange rate; (c) an improvement in productivity (lowering of the labor requirements/product) in one country; and (d) an increase in transportation costs.

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Question 16

Given the following Ricardo-type table showing the amount of labor input required to produce one unit of output of each of the two goods in each of the two countries: United Kingdom 6 days 5 days United States 4 days 3 days Suppose that the U.S. wage rate is $60 per day and that the exchange rate is $2 = £1 (or £0.5 = $1). In this situation, the lower limit for the U.K. wage rate in order to have two-way trade would be __________ per day.

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Question 17

In a Ricardo-type model, if Portuguese workers can produce three times as much wine per Day as English workers but only twice as much cloth per day as English workers, then, if Portuguese wages are 30 euros per day, the upper limit to English wages per day is __________. (Assume 1 euro = £1.)

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Question 18

You are given the following Dornbusch-Fischer-Samuelson (DFS) graph, where a₁ = the Labor-time needed per unit of output in any given industry in the home country, a₂ = the Labor-time needed per unit of output in any given industry in the foreign country, W₁ = The wage rate in the home country, and W₂= the wage rate in the foreign country. The Exchange rate e is assumed = 1. FIGURE 1 In this Dornbusch-Fischer-Samuelson graph, moving to the right along the A line indicates goods in which the country has greater relative efficiency; further, The introduction of technical progress in the foreign country would, other things equal, be Reflected in shift of the curve.

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Question 19

Set up a Ricardo-type comparative advantage numerical example with two countries andtwo goods. Explain how trade between the two countries can benefit each of them in comparison with autarky. Then indicate a situation in which only one of the two countries would gain from trade and carefully explain why only one country gains.

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Question 20

Showing 1 - 20 of 32

In the table in Question #19 above, when trade is taking place among the three countries, will always be exporting wheat and will always be exporting clothing.

Given the following Classical-type table showing the number of days of labor input required to obtain one unit of output of each of the two commodities in each of the three countries: Denmark 4 days 6 days Germany 3 days 3 days Portugal 5 days 9 days Which one of the following statements is correct?

In the Dornbusch-Fischer-Samuelson model of Question #24 above, a shift in tastes and Preferences towards home country goods will cause the schedule to pivot .

In the monetized Classical model, if trade is not balanced, the international terms of trade will deteriorate for the country with the trade deficit. Explain why this is so.

In the Dornbusch-Fischer-Samuelson model of Question #24 above, a rise in labor productivity in the home country would cause real national income to in the home country and in the foreign country.

In Question #15 above, if the U.S. wage rate is $40 per day and the exchange rate is £1 = $1, what is the upper limit to the wage rate in the United Kingdom that is consistent with Two-way trade between the countries?

In the Dornbusch-Fischer-Samuelson graph in Question #24 above, a good that is located On the horizontal axis to the left of the point directly below the intersection of the A curve With the C curve will be exported by the country, and, for this good, .

In the basic Classical model, only the limits to the international terms of trade can be specified. If the two country-two commodity model is monetized using an exchange rate and a wage rate for each country, the international terms of trade are implicitly specified. Explain why this is so.

In a Ricardo-type model, if Portuguese workers can produce three times as much wine per Day as English workers but only twice as much cloth per day as English workers, then, if Portuguese wages are 30 euros per day, the upper limit to English wages per day is __________. (Assume 1 euro = £1.)

Early Trade Theories: Mercantilism and the Transition to the Classical World of David Ricardo

The Classical World of David Ricardo and Comparative Advantage

Introduction to Neoclassical Trade Theory: Tools to Be Employed

Gains From Trade in Neoclassical Theory

Offer Curves and the Terms of Trade

The Basis for Trade: Factor Endowments and the Heckscher-Ohlin Model

Empirical Tests of the Factor Endowments Approach

Post Heckscher-Ohlin Theories of Trade and Intra-Industry Trade

Economic Growth and International Trade

International Factor Movements

The Instruments of Trade Policy

The Impact of Trade Policies

Arguments for Interventionist Trade Policies

Political Economy and Us Trade Policy

Economic Integration

International Trade and the Developing Countries

The Balance-Of-Payments Accounts

The Foreign Exchange Market

International Financial Markets and Instruments: an Introduction

The Monetary and Portfolio Balance Approaches to External Balance

Price Adjustments and Balance-Of-Payments Disequilibrium

National Income and the Current Account

Economic Policy in the Open Economy Under Fixed Exchange Rates

Economic Policy in the Open Economy Under Flexible Exchange Rates

Prices and Output in the Open Economy: Aggregate Supply and Demand

Fixed or Flexible Exchange Rates

The International Monetary System: Past, Present, and Future

Filters

Exam 4: Extensions and Tests of the Classical Model of Trade

In the table in Question #19 above, when trade is taking place among the three countries, __________ will always be exporting wheat and __________ will always be exporting clothing.

In the Dornbusch-Fischer-Samuelson model of Question #24 above, a shift in tastes and Preferences towards home country goods will cause the __________ schedule to pivot __________.

In the monetized Classical model, if trade is not balanced, the international terms of trade will deteriorate for the country with the trade deficit. Explain why this is so.

In the Dornbusch-Fischer-Samuelson model of Question #24 above, a rise in labor productivity in the home country would cause real national income to __________ in the home country and __________ in the foreign country.

In Question #15 above, if the U.S. wage rate is $40 per day and the exchange rate is £1 = $1, what is the upper limit to the wage rate in the United Kingdom that is consistent with Two-way trade between the countries?

In the Dornbusch-Fischer-Samuelson graph in Question #24 above, a good that is located On the horizontal axis to the left of the point directly below the intersection of the A curve With the C curve will be exported by the __________ country, and, for this good, __________.

In the basic Classical model, only the limits to the international terms of trade can be specified. If the two country-two commodity model is monetized using an exchange rate and a wage rate for each country, the international terms of trade are implicitly specified. Explain why this is so.

In a Ricardo-type model, if Portuguese workers can produce three times as much wine per Day as English workers but only twice as much cloth per day as English workers, then, if Portuguese wages are 30 euros per day, the upper limit to English wages per day is __________. (Assume 1 euro = £1.)

Early Trade Theories: Mercantilism and the Transition to the Classical World of David Ricardo

The Classical World of David Ricardo and Comparative Advantage

Introduction to Neoclassical Trade Theory: Tools to Be Employed

Gains From Trade in Neoclassical Theory

Offer Curves and the Terms of Trade

The Basis for Trade: Factor Endowments and the Heckscher-Ohlin Model

Empirical Tests of the Factor Endowments Approach

Post Heckscher-Ohlin Theories of Trade and Intra-Industry Trade

Economic Growth and International Trade

International Factor Movements

The Instruments of Trade Policy

The Impact of Trade Policies

Arguments for Interventionist Trade Policies

Political Economy and Us Trade Policy

Economic Integration

International Trade and the Developing Countries

The Balance-Of-Payments Accounts

The Foreign Exchange Market

International Financial Markets and Instruments: an Introduction

The Monetary and Portfolio Balance Approaches to External Balance

Price Adjustments and Balance-Of-Payments Disequilibrium

National Income and the Current Account

Economic Policy in the Open Economy Under Fixed Exchange Rates

Economic Policy in the Open Economy Under Flexible Exchange Rates

Prices and Output in the Open Economy: Aggregate Supply and Demand

Fixed or Flexible Exchange Rates

The International Monetary System: Past, Present, and Future

Filters

In the table in Question #19 above, when trade is taking place among the three countries, will always be exporting wheat and will always be exporting clothing.

In the Dornbusch-Fischer-Samuelson model of Question #24 above, a shift in tastes and Preferences towards home country goods will cause the schedule to pivot .

In the Dornbusch-Fischer-Samuelson model of Question #24 above, a rise in labor productivity in the home country would cause real national income to in the home country and in the foreign country.

In the Dornbusch-Fischer-Samuelson graph in Question #24 above, a good that is located On the horizontal axis to the left of the point directly below the intersection of the A curve With the C curve will be exported by the country, and, for this good, .