Econ

Topics: Trade, Question, Commerce Pages: 1 (399 words) Published: September 22, 2014
Harris ECN 3000 Homework #1
Please show your work and answers to all parts on separate paper. It will probably be in your best interest to keep this sheet and make a copy of your answers since I may not return your graded homework before the test. Use the following information to answer questions 1-13 below. Two countries, Athens and Troy, produce two goods, ships and food, according to the following production functions:

1 ship = 4 capital + 2 labor
1 food = 1 capital + 3 labor.
Athens has 200 units of capital and 100 units of labor available to produce ships and food. Troy has 100 units of capital and 150 units of labor available to produce ships and food.
1.
2.
3.
4.
5.

Which good is capital intensive in production?
Which good is labor intensive in production?
In which country is capital relatively abundant?
In which country is labor relatively abundant?
Based on your answers to 1 – 4 and using the Heckscher-Ohlin hypothesis, which country should specialize in the production of which good? Why? 6. Calculate the limits of production for Athens and Troy.

7. Calculate the domestic terms of trade for Athens and Troy in terms of 1 ship. 8. Based on your answer to question 7, which country should specialize in the production of which good? Why?
9. Draw the production possibilities curves for each country based on your answers to questions 6 and 7.
10. Supposing that Athens and Troy agree to trade ships and food at an international terms of trade of 1, what observation can you make about their relative demands for ships and food? Which country experiences the greater gains from trade?

11. Draw the consumption possibilities curve for each country on the same graph you drew for question 9.
12. Suppose Athens wants to consume only 25 ships. How many food will it be able to consume? How many ships and how many food would Troy be able to consume?
13. Now, assume that only Athens discovers a new technology that allows it to produce ships using 1.5...
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