Assignment Task
Instructions
• This midterm consists of four problems, each with multiple parts
• Questions are either: (1) multiple choice, or (2) require you to respond numerically
• For multiple choice questions, report the letter associated with your choice (e.g., A)
• For numeric responses, round to the nearest tenth (e.g., 8.35 becomes 8.4)
• You have from 9-10:30AM, EST to submit responses. After this time the test will close
• You must upload pictures of rough work. There will be extra time to do this
Problem 1
Consider a world that consists of two countries, Domestic and Foreign, in a Ricardian model setting.
Suppose Domestic has L¯D = 100 workers and Foreign has L¯
F = 20 workers. The output that one
worker can produce in each country in terms of each good is given in the following table:
Cloth Widgets
Domestic 10 20
Foreign 60 30
1.1 What is the opportunity cost of cloth in Foreign in terms of widgets?
1.2 Which of the following statements is true?
A Home has a comparative advantage in widgets
B Foreign has a comparative advantage in widgets
C Home has a comparative advantage in widgets and cloth
D Neither country has a comparative advantage in widgets
1.3 What is the total amount of cloth that will be produced in the free-trade equilibrium?
1.4 What is the total number of widgets that will be produced in the free-trade equilibrium?
1.5 All else equal, if Domestic workers become twice as productive, Domestic should:
A Sell cloth to Foreign and buy widgets from Foreign
B Sell widgets to Foreign and buy cloth from Foreign
C Sell cloth and widgets to Foreign
D Buy cloth and widgets from Foreign
E Stop trading with Foreign
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