Answers
Answers assignment w5
- Course
- Institution
Answers to the assignments from every week. Helps with studying and understanding the material.
[Show more]
Seller
Follow
solangeroos
Reviews received
Content preview
Tutorial 5: International Trade and Currency Marketand Economic Integration - Week 5
Lecture: (10 min)
- Trade Theories: Absolute and Comparative Advantage, Heckscher-Ohlin
Theories
Assignment 1 : Comparative advantage
Refer to the following table.
Number of labor hours to produce 1 unit of output:
Highland Lowland
Widgets 8 10
Gadgets 4 6
a) Determine which country has an absolute advantage in which good.
Table states number of inputs (labor hours used) to produce 1 output so
country which has smaller number is more efficient and has absolute
advantage
In this case, Highland uses lesser inputs for widgets (8<10) and
gadgets (4<6)
b) Identify the good where each country enjoys a comparative
advantage.
Comparative advantage ratios: (across commodities)
Highland : Widgets = 8/4= 2
Gadgets = 4/8 = 0.5
Lowland: Widgets = 10/6 = 1.67
Gadgets = 6/10 = 0.6
Since we are looking inputs used to produce a unit of output,
comparative advantage resides in the country with the smaller
number. Hence, Highland has comparative advantage in Gadgets
(0.5 < 0.6) and Lowland has comparative advantage in Widgets
(1.67<2).
c) Still using the table above, if the hourly wage is 15 quid in Highland
and 10 grand in Lowland and the current exchange rate is 1 quid =
1 grand. Then comparing prices between the two countries, where
are widgets and gadgets cheaper to buy?
Multiply hours in the table by the given wages
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller solangeroos. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $3.24. You're not tied to anything after your purchase.
Can Stuvia be trusted?
4.6 stars on Google & Trustpilot (+1000 reviews)
56326 documents were sold in the last 30 days
Founded in 2010, the go-to place to buy study notes for 14 years now