Modeling Trade Policy - Assignment Example

1. H country (Francois and Shiells 136)

Home: Labor Requirements = 10 and 20

The relative wage at home =

2. For coffee = 15*30/180 = 2.5
3. For wheat = 10*30/180 = 1.67

Foreign: Labor Requirement = 60 + 30 = 90

7. For coffee = 15*90/180 = 7.5
8. For wheat = 10*90/180 = 5
9.  
10.  
11.  

No. of employed labor

0

1

2

3

4

5

6

7

8

9

10

11

Total product

0

20

39

57

74

90

105

119

132

144

155

165

Marginal product

20

19

18

17

16

15

14

13

12

11

10

Employments levels

H = 11                                                                                                                     

F = 5

Real Wage = the average of both countries = 13

1. Taking H to be the Home country and F to be the foreign country, F requires more labor than F hence, many people will tend to move from H to F to seek labor than the labor that will move to H until the real wage for these countries is the same.
2. The possible curve of the frontier of the economy between these two items
3.  
4. The quality of output
5. W = product/labor = 600/5 = 120
6. C = product/labor = 600/20 = 30
7. The change in output product. It should be noted that an increase in labor will automatically lead to the products especially if all the increased labor is concentrated in the production.
8. The trade-in between these countries will remain unaffected; however, the exporting prices will remain lower than importing prices; hence, the importing country is likely to make high profits compared to the exporting country. Unless the production costs in the producing country have changed rather decreased, the trade on the export good is likely to be affected if such subsidies are to impact the producers directly.
9. Effects
10. An increase in capital in country A will lead to an increase in production of the goods x and y hence, the country thereby affect its importation of the same goods thus, affecting the exportation on the same goods by country B since A shall have increased its production on the same goods.
11. An increase in labor in A will lead to increased production of the goods x and y; however, the same increase in L will lead to labor migration into country B.
12. An increase in the capital in country B will lead to an increase in production of the goods x and y hence, the country thereby affects its importation of the same goods thus, affecting the exportation of the same goods by country A since B shall have increased its production on the same goods.
13. An increase in labor in B will lead to increased production of the goods x and y; however, the same increase in L will lead to labor migration into country A.
14. External and internal economies of scale
15. The internal economy of scale since the change is experienced only within a nation
16. The external economy of scale since the trade or effects of the trade is defined by different trading nations.
17. The internal economy of scale since all these productions affect only a single airline product that its other point of production is conducted in another country.
18. The internal economy of scale since all factors of trade on this only have effects within in a country.
19. Assuming there are 100 firms
20. Price = 17,000 + 1/(n/150) = 17,000 – 150/n

Price = 17,001.5

1. Home trade

AC = 17,000 + (n5, 000,000,000)/300,000,000 = 17,000 + 16.17n

AC = 18,617

1. Foreign trade

AC = 17,000 + (n5, 000,000,000)/533,000,000 = 17,000 + 2.67n

AC = 17,267

The above figures indicate that there are external economies of scale; hence, due to free trade, the customer has a better offers in other markets (Francois and Shiells 200).

8. Additionally, it is worth noting that this factor promoted free trade since nations produces different items at different times; thus, it was only through trade especially free that products from different nations could be acquired by other nations.