International Agricultural Trade Fall 2017 Homework 2 Due October 2 (in class) 1. Table 4 on the next page reports measures of labour productivity for selected manufacturing sectors and countries. Use this data to answer the following questions. a) Suppose that labor is mobile across sectors, but not across countries, so that wages are equalized within each country. Using the 1993 data for Australia and Japan, rank the manufacturing sectors according to Australia’s comparative advantage (put the sector in which Australia has the greatest comparative advantage first, and the country in which Japan has the greatest comparative advantage last). Recall that labor productivity is represented in the Ricardian framework as 1/a. (20 points) b) Japanese wages in 1993 were approximately 2 times larger than Australian wages. At a 2:1 wage ratio, which industries would the Ricardian model predict that Japan would export to Australia? (20 points) c) Refer back to the table. Note that US productivity in 1993 is higher than Australia’s in every manufacturing sector. Describe the situation in terms of Absolute and comparative advantage. Note those sectors in which comparative advantage is strongest for each country. (20 points) 2. One of the more important developments of recent years is the entry of China into world markets. This has generally meant a decrease in the relative price of manufactured goods. Draw a relative supply and relative demand graph that illustrates the change in the world situation. (20 points) 3. One of the more contentious policy issues in world trade is the existence of large agricultural subsidies in rich developed countries, especially in the U.S. and Europe. Those developing countries that export primary agricultural commodities argue that subsidies in the developed countries reduce the developing countries’ terms of trade. For example, in 2005, the World Trade Organization concluded that U.S. cotton subsidies were so large that they affected the world price of cotton. The WTO ruled that the U.S. must reduce its cotton subsidies if it was to live up to its WTO commitments. Suppose the U.S. complies with the WTO decision, and its cotton production is reduced. Use the relative supply and demand graph to show the impact on the terms of trade of cotton exporters. (20 points) Source: Pilat, Dirk, “Labour Productivity Levels in OECD Countries: Estimates for Manufacturing and Selected Service Sectors” OECD working paper #196, 1996

International Agricultural Trade

Fall 2017

Homework 2

Due October 2 (in class)

 

  1. Table 4 on the next page reports measures of labour productivity for selected manufacturing sectors and countries. Use this data to answer the following questions.

 

  1. Suppose that labor is mobile across sectors, but not across countries, so that wages are equalized within each country. Using the 1993 data for Australia and Japan, rank the manufacturing sectors according to Australia’s comparative advantage (put the sector in which Australia has the greatest comparative advantage first, and the country in which Japan has the greatest comparative advantage last).  Recall that labor productivity is represented in the Ricardian framework as 1/a. (20 points)

 

  1. Japanese wages in 1993 were approximately 2 times larger than Australian wages. At a 2:1 wage ratio, which industries would the Ricardian model predict that Japan would export to Australia? (20 points)

 

  1. Refer back to the table. Note that US productivity in 1993 is higher than Australia’s in every manufacturing sector.  Describe the situation in terms of Absolute and comparative advantage.  Note those sectors in which comparative advantage is strongest for each country. (20 points)

 

  1. One of the more important developments of recent years is the entry of China into world markets. This has generally meant a decrease in the relative price of manufactured goods.  Draw a relative supply and relative demand graph that illustrates the change in the world situation. (20 points)

 

 

  1. One of the more contentious policy issues in world trade is the existence of large agricultural subsidies in rich developed countries, especially in the U.S. and Europe. Those developing countries that export primary agricultural commodities argue that subsidies in the developed countries reduce the developing countries’ terms of trade.  For example, in 2005, the World Trade Organization concluded that U.S. cotton subsidies were so large that they affected the world price of cotton.  The WTO ruled that the U.S. must reduce its cotton subsidies if it was to live up to its WTO commitments.  Suppose the U.S. complies with the WTO decision, and its cotton production is reduced.  Use the relative supply and demand graph to show the impact on the terms of trade of cotton exporters.  (20 points)

 

 

Source: Pilat, Dirk, “Labour Productivity Levels in OECD Countries: Estimates for Manufacturing and Selected Service Sectors” OECD working paper #196, 1996



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