Assignment
1. Calculate openness as a percentage for Paraguay and Poland. Explain how you calculated openness, i.e., write down the formula. Using a graph of Openness (as a percentage) versus time, explain in up to 200 words how openness has changed for these countries from 2001 to 2014. Put Paraguay and Poland in the same graph and make sure your graph is properly labelled.
2. Explain in up to 200 words the relationship between Openness and economic development by calculating the correlation coefficient between GDP per capita (proxy for economic development) and Openness for Paraguay and Poland, respectively. [Here you have to use the CORREL command in Excel].
3. Consider the following model of trade between Home and Foreign. Assume throughout that those two countries are the only two countries in the world, at least for purposes of trade. There are two goods: Corn and Radio. Consumers always spend one-third of their income on Corn and the remainder on Radios. The only factor of production is labour. Each home country worker can produce 2 units of Corn or 3 units of Radios per unit of time, while each foreign worker can produce 2 units of Corn or 4 units of Radios per unit of time. There are 30 workers in Home and 60 workers in Foreign.
(a) Which country has an absolute advantage in Radios? In Corn?
(b) Which country has a comparative advantage in Radios? In Corn?
(c) Draw the typical worker's budget line in both countries (put Corn on the vertical axis and Radios on the horizontal axis).
(d) Draw the production possibility frontier for each country (put Corn on the vertical axis and Radios on the horizontal axis).
(e) Find the autarky relative price of Radios in both countries (i.e., the price of Radio divided by the price of Corn).
(f) What is the optimal consumption and production for each country under autarky?