Ambo University

College of Business and

Economics Department of
Economics
International Economics-I Assignment
Maximum Mark: 20%, Submission date: Sep 18, 2022 @12:00P.M. or at the latest!
General Directions:
 Be in a group of a maximum of 5or 6 members,
 Try to show all the necessary steps and explanations neatly, and
 Copying from each other is totally forbidden and will result in zero value.
 Use this Page as a cover page.
Aim of the Assignment: The major aim of this assignment is to let you read and
analyze different theories of trade based on the content of International Economics-I.
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Briefly explain the following question and show the necessary steps for the calculation part.
1. Explain the principle of comparative advantage and differences between it and the principle of
absolute advantage.
2. Assume two countries the US and UK, two goods corn and textiles. Further assume that labor is the
only relevant input in production and in the pre-trade situation in each country in the production of
one unit of each product. Accordingly, UK requires 9 and 18 units of labour; while the US requires 6
and 3 units labour to produce one unit of textiles and Corn respectively. Then
A. Which country has an absolute advantage in which product?
B. Indicate which country has a comparative advantage in production of a certain good.
C. What is the maximum output each country can produce of the good it has a comparative
advantage in? What is the gain from this specialization?
D. Describe the pattern of trade that is possible if both countries enter into a trade relationship.
E. Assume now, that the labor input requirements are 12 for textiles and 6 for corn in the UK. Is
it possible to define a comparative advantage or say something about the trade pattern?
3. Home has 1,200 unit of labor available. It can produce two goods, apples and bananas. The unit labor
requirement in apple production is 3, while in banana production it is 2.
A. Graph Home’s production possibility Frontier
B. What is the opportunity cost of apples in terms of bananas
C. In the absence of trade, what would the price of apples in terms of bananas be? Why?
4. State the H-O theorem. What is the Leontif paradox in reference to the H-O theorem?
5. What is the Stolpher-Samuelson theorem? Provide an intuitive explanation of the theorem.
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S.N Name of Group Members Id No.
.
1. Jalata Adisu

2. Tesfaye Tamiru

3. Merga Fekede

4. Leta Negasa

5. Tesema Fekadu

6.
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