1. Amount of Beef or Computers Produced by One Worker in a Day Canada Japan

Beef 8 5

Computers 3 4

2. Which country has the absolute advantage in beef production?

3. Which country has the absolute advantage in computer production?

4. Which country has the comparative advantage in beef production?

5. Which country has the comparative advantage in computer production?

6. What are the limits of the terms of trade? Specifically, when is Canada willing to trade with Japan, and when is Japan willing to trade with Canada?

7. Tariffs and quotas both raise the price of foreign goods to domestic consumers. What is the difference between the effects of a tariff and the effects of a quota on the following?

a. The domestic government

b. Foreign producers

c. Domestic producers

8. How would the effects of international trade on the domestic orange market change if the world price of oranges were above the domestic equilibrium price? Draw a graph to help explain your answer.

9. You are a U.S. importer who buys goods from many different countries. How many U.S. dollars do you need to settle each of the following invoices?

a. 1,000,000 Australian dollars for wool blankets (exchange rate: A$1 . $.769)

b. 500,000 British pounds for dishes (exchange rate: £1 . $1.5855)

c. 100,000 Indian rupees for baskets (exchange rate: Rs1 . $.0602)

d. 350 million Japanese yen for stereo components (exchange rate: ¥1 . $.0069)

e. 825,000 euros for German wine (exchange rate: E 1 . $1.05)

10. What is the dollar value of the invoices in exercise 13 if the dollar:

a. depreciates 10 percent against the Australian dollar

b. appreciates 10 percent against the British pound

c. depreciates 10 percent against the Indian rupee

d. appreciates 20 percent against the Japanese yen

e. depreciates 100 percent against the euro

11. Explain purchasing power parity and why it does not hold perfectly in the real world