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1.) The maximum amount of steel or aluminum that Canada and
France can produce if they fully use all the factors of production
with the best technology available to them is shown in Table 1.
Assume that production occurs under constant-cost conditions. (30
points)

Table 1:

Canada

France

Steel (tons)

500

1,200

Aluminum (tons)

1,500

800

Draw the production possibilities schedules for Canada and
France; locate aluminum on the horizontal axis and steel on the
vertical axis of each country’s graph. In autarky,
assume that Canada produces and consumes 600 tons of aluminum and
300 tons of steel and that France produces and consumes 400 tons of
aluminum and 600 tons of steel.

a.) Denote these autarky points on each nation’s production
possibilities schedule.

b.) Determine the MRT for each nation. According to the
principle of comparative advantage, should the two nations
specialize? If so, which product should each country produce? Will
the extent of specialization be complete or partial? Denote each
nation’s specialization point on its production possibilities
schedule. Compared to the output of steel and aluminum that occurs
in autarky, does specialization increase output? If so, by how
much?

c.) Within what limits will the terms of trade lie if
specialization and trade occur? Suppose Canada and France agree to
a terms-of-trade ratio of 1:1 (1 ton of steel = 1 ton of aluminum).
Draw the terms-of-trade line for each nation.

2.) Table 2 gives five combinations of steel and autos that
Japan and South Korea can produce if they fully use all factors of
production with the best technology available to them. Draw the
production possibilities schedules of Japan and South Korea. Locate
steel on the vertical axis and autos on the horizontal axis of each
nation’s graph. In autarky, Japan produces and consumes 500 tons of
steel and 600 autos. In autarky, South Korea produces and consumes
200 tons of steel and 800 autos. (70 points)

Table 2:

Question: 1.) The maximum amount of steel or aluminum that Canada andFrance can produce if they fully use ...

Show transcribed image text Due: February 14, 2017 Homework 1 2. Table 2 gives five combinations of steel and autos that Tapan and South Korea can produce if they fully use all factors of production with the best technology available to them. Draw the production possibilities schedules of Japan and South Korea. Locate steel on the vertical axis and autos on the horizontal axis of each nation's graph. In autarky, Japan produces and consumes 500 tons of steel and 600 autos. In autarky, South Korea produces and consumes 200 tons of steel and 800 autos. (70 points) Table 2: Japan South Korea Steel (tons) Aaltos Steel tons0 Autos 0 1.200 0 520 600 500 900 400 600 350 1.100 650 200 1.300 200 800 1,430 810 a. The production possibilities schedules of the two countries appear concave from the origin Why? b. Suppose that Japan's MRT equals 1/6 ton of steel per auto: South Korea's MRT equals 6 tons of steel per auto. Should the two nations specialize according to the principle of comparative advantage? If so, in which product should each nation specialize? c. The process of specialization in the production of steel and autos continues in Japan and South Korea until their relative product prices, or MRTs, become equal. With specialization, suppose the MRTs of the two nations converge at MRT-1. Starting at Japan's autarky point, slide along its production possibilities schedule until the slope of the tangent line equals 1. This becomes Japan's production point under partial specialization. In like manner, determine South Korea's production point under partial specialization. Japan produces 200 tons of steel and 1300 autos while South Korea produces 900 tons of steel and 400 autos. For the two nations, does the output of steel and autos with partial specialization exceed their output in autarky? If so, by how much? d. With the relative product price in each nation now in equilibrium at 1 ton of steel equal to 1 auto (MRT-1), suppose 500 autos are traded at this terms of trade. (1) Determine the point along the terms-of-trade line at which Japan will locate after trade occurs. What are Japan's consumption gains from trade? (2) Determine the point along the terms-of-trade line at which South Korea will locate after trade occurs. What are Japan's and South Korea's consumption gains from trade?

Due: February 14, 2017 Homework 1 2. Table 2 gives five combinations of steel and autos that Tapan and South Korea can produce if they fully use all factors of production with the best technology available to them. Draw the production possibilities schedules of Japan and South Korea. Locate steel on the vertical axis and autos on the horizontal axis of each nation's graph. In autarky, Japan produces and consumes 500 tons of steel and 600 autos. In autarky, South Korea produces and consumes 200 tons of steel and 800 autos. (70 points) Table 2: Japan South Korea Steel (tons) Aaltos Steel tons0 Autos 0 1.200 0 520 600 500 900 400 600 350 1.100 650 200 1.300 200 800 1,430 810 a. The production possibilities schedules of the two countries appear concave from the origin Why? b. Suppose that Japan's MRT equals 1/6 ton of steel per auto: South Korea's MRT equals 6 tons of steel per auto. Should the two nations specialize according to the principle of comparative advantage? If so, in which product should each nation specialize? c. The process of specialization in the production of steel and autos continues in Japan and South Korea until their relative product prices, or MRTs, become equal. With specialization, suppose the MRTs of the two nations converge at MRT-1. Starting at Japan's autarky point, slide along its production possibilities schedule until the slope of the tangent line equals 1. This becomes Japan's production point under partial specialization. In like manner, determine South Korea's production point under partial specialization. Japan produces 200 tons of steel and 1300 autos while South Korea produces 900 tons of steel and 400 autos. For the two nations, does the output of steel and autos with partial specialization exceed their output in autarky? If so, by how much? d. With the relative product price in each nation now in equilibrium at 1 ton of steel equal to 1 auto (MRT-1), suppose 500 autos are traded at this terms of trade. (1) Determine the point along the terms-of-trade line at which Japan will locate after trade occurs. What are Japan's consumption gains from trade? (2) Determine the point along the terms-of-trade line at which South Korea will locate after trade occurs. What are Japan's and South Korea's consumption gains from trade?