Helwan University

Faculty of Commerce & Business Administration
Business Information Systems (BIS)

Fall 2014/2015
Economics of Foreign Trade

Instructors: Dr. Marwa Assem & Dr. Ahmed Abdel-Halim
Name (in Arabic):

ID:

Assignment 1 (10 Points) – Due Tuesday 4/11/2014
- PRINT, SOLVE on the SAME paper, then SUBMIT.
- COPIED ANSWERS WILL RECEIVE ZERO!! PROMISE.
Question 1:
Suppose you are given the following information about the productivity of labor in Japan
and India.
Table 1.1: Number of units produced per labor hour
LCDs
Textiles

Japan
2
5

India
1
8

A. In table 1.2 below, calculate the labor cost of producing each good in each country.
Table 1.2: Labor Costs (in labor hours)
Japan

India

LCDs
Textiles
B. Which country has an absolute advantage in LCDs? In textiles? Explain.

C. Could international trade occur and be mutually beneficial based on absolute
advantage? Why or why not?

Page 1 of 5

Before specialization.3: Units Opportunity Costs Japan India LCDs Textiles E. Suppose further that once trade occurs.5: Production after Specialization Japan LCDs Textiles Page 2 of 5 India . In table 1. In table 1. Suppose that each country has a total of 100 labor hours. show the pattern of consumption and production before specialization and trade in both countries. Show your calculations. which country has a comparative advantage in LCDs? In textiles? Explain. Table 1.3 below. Calculate the opportunity costs of producing LCDs and Textiles in each country. Summarize your results in table 1.4: Production & Consumption before Specialization Japan India LCDs Textiles G. F. each country allocates 50 labor hours in the production of each good. show the pattern of production after specialization in both countries.4 below. Table 1. Table 1. Based on your answer in C. the two countries will exchange 80 LCDs for 320 units of textiles.5 below.D.

7 and show that international trade based on comparative advantage is mutually beneficial. Calculate the gains from trade to each country in table 1.6. Table 1. Express the gains from trade you calculated in part K in terms of labor hours saved.7: Gains from Trade (in units of the two goods) Japan India LCDs Textiles L. What is the international rate of exchange in this case? Will trade be mutually beneficial under this rate? Why or why not? (Hint: What is the range for the international rate of exchange that makes trade mutually beneficial?) J. Page 3 of 5 . show the pattern of consumption after trade in both countries.H.6: Consumption after Trade Japan India LCDs Textiles K. Table 1. In table 1. What are the total gains in world production due to specialization based on comparative advantage? I.

000 workers.3: Production and Consumption before Specialization Mobile phones Finland Canada Total Page 4 of 5 Boats . Table 2. Before specialization.1: Production Possibilities per worker Finland Canada Mobile phones 32 40 Boats 4 10 A. Suppose each country has 1. Table 2. each country devotes 40% of its labor to mobile phone production and 60% to boat production.2: Opportunity Costs per unit Mobile phones Boats Finland Canada C.. B. Calculate the opportunity costs of producing one unit of each good in each country.2 below.3 below. Table 2. Which country has an absolute advantage in mobile phones? In boats? Explain.Question 2: Suppose in Finland a worker can produce either 32 mobile phones or 4 boats while in Canada a worker can produce either 40 mobile phones or 10 boats. Write your answers in Table 2. Which country has a comparative advantage in mobile phones? In boats? Explain. D. What is the pre-specialization output of mobile phones and boats? Write your answers in Table 2.

Table 2. Complete Table 2.6 below.6: Gains from Trade Mobile phones Finland Canada Page 5 of 5 Boats . Table 2. the two countries will exchange 3.5: Consumption after Trade Mobile phones Boats Finland Canada Table 2. Use your answers to complete tables 2. Calculate consumption after trade as well as gains from trade in each country.5 and 2. Assume that with trade.4: Production after Specialization Mobile phones Boats Finland Canada Total Total Gains from Specialization F.000 boats for 18.000 mobile phones. Suppose each country specializes in the production of the good in which it has a comparative advantage.E.4 below.