How do you determine a pre-trade equilibrium using PPF and indifference curves?
How do you determine a country’s absolute advantage and comparative advantage?
How do you use pre-trade relative prices or opportunity costs to determine patterns of trade?
Under trade, the equilibrium relative price of a traded good must stay within which interval in order for trade to
be mutually beneficial?
What is the meaning of an international trade equilibrium?
How are gains from trade reflected in a graph that involves PPF and indifference curves?
How does trade affect a worker’s real wage?
What is the meaning of terms of trade? Is it the relative price of a country’s exports or imports? Why?
Two countries: US and Mexico. Two goods: Airplane and car. A US worker’s MPL is 20 times higher than a
Mexican worker in making an airplane. A US worker’s MPL is 5 times higher than a Mexican worker in making
a car. Which country has absolute advantage in making cars and why? Which country has comparative
advantage in making cars and why?
Sample Solution
