Trade Competitiveness

1. CountryA has 1500 units of labor and can produce two goods, manufactures and food. A's producers take 5 units of labor to produce one unit of manufactures and 6 units to produce one unit of food. Country B has 1800 units of labor and takes 3 units of labor to produce one unit of manufactures and 9units to produce one unit of food. Draw the production possibility frontiers for the two countries. Draw the world relative supply curve for manufactures. Would trade take place in between A and B in Adam Smith's world? What good would A export?

2. Suppose at current factorprices a country's manufactures use 60 hours of labor for each acre of land and food is produced using only fifteen hours of labor par acre of land. If the economy's tc4,31 resources are 1800 hours of labor and 180 acres of land, how much labor and land are allocated to manufacture and food production respectively? If the labor supply grows 50%, what happens to the allocation?

3. Using supply and demand analysis for manufactures and assuming Canada is a high priced producer compared to the US, draw the supply and demand curves for Canada and the US as well as the import demand and supply curves assuming free trade.

4 Luxembourg imports a good at a world price of $10 each. The domestic supply curve is S 30 + 5P where P is in au and 1 Ecu = $1. Demand curve is D =400 -10P. Draw demand and supply curves for this good and indicate how much is imported.

5. During the 1950s and 60s, Mr. T. Ohno of Toyota developed the Lean Production System. Subsequentlymany other Japanese automobile companies adopted it The net result was the Japan's automobile industry improved its productivity throughout this period relative to the US, which generallyjust kept up with inflation due to its already high rate of accumulated experience and relatively slow growth. Assume the Japanese industry started in 1955 with production of 100,000 cars per year and an initial cost of $2,0::X) per car and that production (demand) grew 50% per year for the next five years and then 25% per year for the next ten years. If Japanese relative costs compared to the US dropped 20% for each doubling of accumulated experience (the total amount ever produced), in which year would Japanese costs equal US costs if the US cost per car in 1955 was $1500? (Inyour calculation, you can assume that for comparative purposes the US industry's cost remained constant and would have remained constant even if they had suppliedthe Japanese market,) Given a real discount rate on Japanese government bonds of 6% during this period, by 1970 was the cost to Japan of protecting this industry recovered due to its improved long run productivity compared to having imported cars from the US?