Assignment
Read Chapters 1, 2 and 6 of the textbook very carefully.
1. Using data that you obtained for Assignment 1 for Paraguay and Poland, calculate the correlation coefficient (using CORREL command in excel) between Openness and the GINI Index for each nation. Report and interpret this relationship in up to 200 words.
[Hint: the GINI is often used as a proxy for the ratio of skilled to unskilled wages in empirical studies].
2. Using a graph (from your lecture slides) for substitutable inputs case, explain in up to 200 words the Stolper-Samuelson theorem.
3. Assume that both Paraguay and Poland are unskilled-labour abundant countries. Based on your findings in Question 1, explain in up to 200 words whether your data agree or disagree with the Stolper-Samuelson theorem.
4. Consider the Ricardian model given in Question 3 of Assignment 1.
(a) Derive the relative demand curve relating the relative demand for Radios to the relative price of Radios. Do this algebraically, and then show what the curve looks like in a diagram (put the relative price of Radios on the vertical axis and the relative quantity of Radios demanded on the horizontal axis).
(b) Derive the world relative supply curve of Radios (put the relative price of Radios on the vertical axis and the relative quantity of Radios supplied on the horizontal axis).
(c) Put in the same figure the relative demand curve for Radios that you found in part (a) and the world relative supply curve of Radios that you found in part (b). Determine the equilibrium relative price of Radios and the equilibrium relative quantity of Radios under free trade. (2 marks)
(d) Under free trade, which country produces which good(s)? How many units?
(e) Who gains from trade? Who loses from trade? State labours' stance towards free trade in each country.