Homework 1-part of class activities Specialization in trade- based on Ricardo\'s

Question

Homework 1-part of class activities Specialization in trade- based on Ricardo's Theory: Given that two nations have equal resources and bo to specialize in the production of a product that h nations agree is most efficient, determine: a) Specialization between the two nations (which nation specializes in which product?) b) The range of terms of trade (trade negotiation terms) c) The best of terms of trade (democratic distribution of ta de benefit) d) The net benefit for each country (after specialization) e) Discuss the limitations of production and export based on such assumption in the current global economy Use the following data to answer the above questions. Before specialization US 10 10 Products/Country Japan 20 10 Auto Plane

Explanation / Answer

Ans

Japan should specialize in auto as its OPPUTUNITY cost of 10/20=0.5 is less than that of USA 10/10=1.usa should specialize in plane

2 from 20/10=2 auto per plane to 10/10=1 auto per plane I. E between domestic relative prices

3 obviously 1.5 auto per plane as it is midway between 2 and 1

4 Japan will get more than 0.5 plane per auto and usa will get more than one auto per plan. In case of 1.5 Terms of trade the net benefit will be . 5

5 it neglects intra industry trade and trade between developed countries for different varieties of same product

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