Econ

ECON 321: Introduction to International Economics

Instructor: Dr. Uchechukwu Jarrett

Spring 2020

Assignment 1: Trade in a global economy, the Ricardian model & the Specific factor model

Due Date: 02/17/2020

Instructions

1. Go to module 1 on canvas and download the Assignment (labelled Econ

321_Assignment_1_question set)

2. Go to Canvas to see your assigned group, as well as other members of your group. You

should be able to contact them through Canvas.

3. Assignments should be typed. Any graphs and equations can be hand drawn or written

and then attached to the word file (you can either scan the hand drawn graphs or take

pictures and paste the images on word).

4. File formats for submitted assignments should be either word or PDF

5. Make sure to contact your group members as soon as possible and decide on how each

member will participate in the assignment.

6. The names of all eventual participating group members as well as group number should

be on the first page of the submitted assignment.

7. Assignment Due Date is Monday, 02/17/2020 at 12:00Noon, but question 11 is

due on the 9th of February, 2020 at 11:59PM. Question 11 should also be

submitted with the rest of the assignment so that points can be assigned as

part of your assignment grade.

8. Completed assignments should be submitted on Canvas. Click on assignments, then

assignment 1, then submit assignment then upload file. Anyone can be designated by the

group to do this, and the chosen person should notify the group when this is done. Only

one submission per group!!!

9. Recitations will be held on Friday the 14th of February, 2020 in HLH 223 from 1PM

to 4PM. Feel free to stop by and ask Lahiru any questions to help clarify any issues, while

he goes over some cues that will guide you to getting the correct answer.

10. I will also be in the office at that time (HLH 525T) should you have any further questions.

11. Scores will be posted on Canvas and I will notify you when these are available.

Assignment grading “Rubric” for Econ 321- Assignment # 1

Purpose of this assignment is to demonstrate one of the learning outcomes for Econ-321

Learning outcome is to demonstrate functional knowledge of particular economic theories

and demonstrate an ability to communicate economic knowledge through written

communication

TA, for this course, will follow this rubric strictly to grade this assignment.

Problems Criteria for full points (Excellent & Good answers)

Unacceptable answers

Comments Total Points

1 Use your own words and show that you understand the concept from lecture sheets and text book. Write this answer within maximum 3 sentences for each option.

Plagiarism. Too many words that do not add substantial points to your answer.

Be concise in your answer.

10

2 Be concise in your answer. [Maximum 3-5 Sentences]

Plagiarism. Too many words that do not add substantial points to your answer.

5

3 Answer directly agree/disagree. Then explain clearly in your own words.

Too many words that do not add substantial points to your answer.

Be concise in your answer.

5

4 Answer each part of the question correctly and show your full calculation.

Missing any part of the question, lack of calculations.

Explain your answer if necessary.

10

5 Use your own words and show that you understand the concept from lecture sheets and text book. Write this answer within maximum 3 sentences for each option.

Plagiarism. Too many words that do not add substantial points to your answer.

Be concise in your answer.

10

6 Answer each part of the question correctly using your own words to show that you understand the concept and show your full calculation where necessary.

Missing any part of the question, lack of calculations.

Explain your answer if necessary. Be concise in your answer

10

7 Answer each part of the question correctly using your own words to show that you understand the concept and show your full calculation where necessary.

Missing any part of the question, lack of calculations.

Explain your answer if necessary. Be concise in your answer

15

8 Clearly mention the differences

Make sure to illustrate how each point you make is different across each model

Try to figure out the differences as much as you can to get full points.

10

9 Point out the underline reasons.

Lack of proper explanation.

Look at text book chapter and lecture materials.

10

10 Show your full calculation step by step.

Not showing your steps during your calculation.

Calculate properly and answer properly each part of the question.

10

11 Question should be original, complete, meaningful and related to one of the topics covered in this assignment

An unoriginal question (found on the internet)

Logic for what the question tests must be provided otherwise half the points will be lost

5

Total 100

Questions

Chapter 1: The global economy: Basics of world trade

1. Do you agree or disagree with the following statements

a. Balanced trade is the difference between exports and imports b. If country A can out produce country B, then country A has no reason to trade c. Every country in the world experiences free trade d. There is no connection between Foreign direct investment and trade flows e. An accurate way to measure imports is to assign the value of a final good

2. Trade distortion effects increases estimates of the United States’ trade deficit with China.

To what degree do you agree or disagree with this statement. Be sure to provide reasons

why.

3. The magnitude of trade deficits a country has is an indicator that they have engaged in harmful trade deals and they must renegotiate all trade agreements or better yet, retreat from globalization. Do you agree or disagree with this statement? Why or why not?

4. Please solve the following problems and show your work for full points

a. The trade-to-GDP ratio for a nation that had $200 million in exports, $300 million

in imports, and GDP of $2,000 million would be ___________

b. If export to GDP ratio is 0.1 and import to GDP ratio is 0.22, then trade to GDP ratio

is _____________

c. If a country has a trade to GDP ratio of 0.8 with exports of 800 million and imports

of 900 Million, its GDP would be _____________

d. Suppose a country’s GDP increases by 2%, but its trade flows remain the same. If its

previous trade to GDP ratio was 0.4, what is the country’s new trade to GDP ratio?

Chapter 2: Ricardian Model

5. Given your recent exposure to the Ricardian model, answer the following questions

a. Can one country have comparative advantage in all goods? Why or why not?

b. Suppose it has been determined that a country has comparative advantage in the

production of Adamantium and a comparative disadvantage in vibranium,

i. Does the Ricardian model predict that the wages in the Vibranium industry

will increase? Why or why not?

ii. Does the Ricardian model predict partial specialization in the Vibranium

industry? Why or why not?

6. Consider the following table.

Country A Country B

MPL of wheat 5 8

MPL of cloth 10 4 a. Which country has an absolute advantage in wheat production? Why?

b. Which country has an absolute advantage in cloth production? Why?

c. Which country has a comparative advantage in wheat production? (Show why)

d. Which country has a comparative advantage in cloth production? (show why)

e. In what range must the international relative price of wheat fall? Why?

7. Suppose that: In Malaysia the unit labor requirement (ULR) to produce a pound of rice

and a pencil are 2 and 4 hours of labor respectively; In Indonesia, the unit labor

requirement to produce a pound of rice and a pencil are 4 and 6 hours respectively; each

country has 20,000 hours of labor to allocate between the production of rice and pencils;

and in autarky, Malaysia consumes 5,000 pounds of rice and 2,500 pencils. When trade

occurs, the world relative price of rice W

R

W

P

P

P becomes 3/5.

a. Given that the marginal product of labor is the inverse of unit labor requirements, i.e.

MPL = 1/ULR, derive the relationship between price ratio and the ratio of unit labor

requirements. (hint: remember that w = P * MPL and that in autarky wages in both

sectors are equal)

b. Which country has the better technology?

c. What are the autarkic (pre-trade) relative prices of rice and pencils respectively in each

country?

d. How many work hours are employed in the Pencil and Rice sector respectively in

Malaysia?

e. In which product will each country specialize?

f. When specializing, how many units of rice and pencils will Malaysia produce? (hint:

obtain total labor hours available from your answer in part d. above)

Chapter 3: Specific Factors Model

8. How does the specific factors model differ from the Ricardian model? (list at least 3 for full points)

9. Suppose that land is specific to agriculture, capital is specific to manufacturing, and labor

is mobile between sectors. If there is an increase in the amount of capital, holding the

prices of agricultural and manufacturing goods constant, what happens to the equilibrium

nominal wage rate and labor allocation? What happens to the rental rate of capital? What

happens to the rental rate of land?

10. Suppose that land is specific to corn, capital is specific to automobiles, labor is mobile

between sectors, and payments are as follows:

Automobiles: Sales revenue = 400; payments to labor = 100; payments to capital = 300

Corn: Sales revenue = 300; payments to labor = 250; payments to land = 50

Holding the price of automobiles constant, suppose the increase in the price of corn is 10%

and the increase in the wage is 5%. What is the impact of this on the rental of land and the

rental of capital?

Thought exercise: Question generation (This is due on Sunday, the 9th of February,

2020 at 11:59PM)

11. Choose any topic above and construct an original multiple choice question

(complete with question, at least 4 responses and the correct answer). In

addition, provide the logic for what the question was designed to test.