1- The hypothetical figures in Table 1 give five alternate combinations of steel and autos that Japan and South Korea can produce if they fully use all factors of production at their disposal with the best technology available to them. On graph paper, sketch the production possibilities schedules of Japan and South Korea. Locate steel on the vertical axis and autos on the hori- zontal axis of each nation's graph.

 Table 1

Steel and Auto Production

a-The production possibilities schedules of the two countries appear concave, or bowed out, from the origin. Why?

b-In autarky, Japan's production and consumption points along its production possibilities schedule are assumed to be 500 tons of steel and 600 autos. Draw a line tangent to Japan's autarky point and from it calculate Japan's MRT of steel into autos. In autarky, South Korea's production and consumption points along its production possibilities schedule are assumed to be 200 tons of steel and 800 autos. Draw a line tangent to South Korea's autarky point and from it calculate South Korea's MRT of steel into autos.

c-Based on the MRT of each nation, should the two nations specialize according to the prin- ciple of comparative advantage? If so, in which product should each nation specialize?

2. How does the commodity terms-of-trade concept attempt to measure the direction of trade gains?

3-How does the Leontief paradox challenge the overall applicability of the factor-endowment model? 

4-What is meant by the term industrial policy? How do governments attempt to create compar- ative advantage in sunrise sectors of the economy? What are some problems encountered when attempting to implement industrial policy?

5- -Table 2 illustrates the supply and demand schedules for calculators in Sweden and Norway. On graph paper, draw the supply and demand schedules of each country.

a-In the absence of trade, what are the equilibrium price and quantity of calculators produced in Sweden and Norway? Which country has the comparative advantage in calculators?

b-Assume there are no transportation costs. With trade, what price brings about balance in exports and imports? How many calculators are traded at this price? How many calculators are produced and consumed in each country with trade?

c -Suppose the cost of transporting each calculator from Sweden to Norway is $5. With trade, what is the impact of the transportation cost on the price of calculators in Sweden and Norway? How many calculators will each country produce, consume, and trade?

d- In general, what can be concluded about the impact of transportation costs on the price of the traded product in each trading nation? The extent of specialization? The volume of trade?

Table 2

SUPPLY AND DEMAND Schedules for Calculators