Week 2 – seminar

Week 2 – seminar

1. 
   “According to Ricardo’s analysis, a country exports any good whose production requires fewer labor hours per unit than the labor hours per unit needed to produce the good in the foreign country. That is, the country exports any good in which its labor productivity is higher than the labor productivity for this good in the foreign country.” Do you agree or disagree? Why?
   
2. 
   “For my country, imports are the good thing about international trade, whereas exports are more like the necessary evil.” Do you agree or disagree? Why?
   
3. 
   “Mercantilism recommends that a country should limit its exports, so that more of the otherwise-exportable products are instead available for local consumption.” Do you agree or disagree with this characterization of mercantilism’s message? Explain.
   
4. 
   Consider the two economies shown in Figure 3.1. When there is free trade, are we sure that each country should specialize completely in producing only one of the products? For instance, perhaps each country should shift along its production-possibility curve only about halfway from the no-trade production point S0 to the intercept point S1. If the countries still traded with each other at the relative price of 1 W/C, would producing at the halfway point be better or worse for each country (compared to completely specializing at point S1)?
   

5. 
   Consider the numerical example that we used to demonstrate the thinking of Adam Smith (page 34). Assume that there is now no international trade. You are the first person to notice the differences between the countries and the possibility of international trade. How would you engage in arbitrage? How much can you profit from your first small amount of arbitrage?