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03_ProblemSet_3

The document is a problem set for an International Economics course focusing on the Standard Trade Model, specifically analyzing trade between Norway and Sweden, and Spain and Italy. It includes graphical representations and calculations regarding shifts in consumer preferences, technological improvements, tariffs, and biased growth effects on welfare and relative supply. Additionally, it examines the implications of resource transfers between Germany and France on their welfare.

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2 views1 page

03_ProblemSet_3

The document is a problem set for an International Economics course focusing on the Standard Trade Model, specifically analyzing trade between Norway and Sweden, and Spain and Italy. It includes graphical representations and calculations regarding shifts in consumer preferences, technological improvements, tariffs, and biased growth effects on welfare and relative supply. Additionally, it examines the implications of resource transfers between Germany and France on their welfare.

Uploaded by

isayevanezrin1
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd

Dr.

Alexandra Seidel
Introduction to International Economics

Problem Set 3

The Standard Trade Model

1. Using the Standard Trade Model in which the two goods are cars and fish, and the two
countries are Norway and Sweden with Sweden initially exporting cars to Norway,

(a) show graphically an initial equilibrium in this model.

(b) Work out the effects of the following changes on:


 the international relative price of cars, and
 the outputs of both goods in both countries.

i) A shift in consumer preferences in both countries in favor of fish.


ii) A technological improvement that increases, for any given allocation of re-
sources, the output of cars in Sweden by 20%.
iii) A prohibitive tariff (i.e., one that reduces imports to zero) levied by Norway.

2. Consider a standard trade model with two countries, Spain and Italy. Spain has compara-
tive advantage in wine, while Italy in beef.
(a) Suppose that Italy experiences biased growth towards beef. Analyze the effect of
this biased growth on
i. the world relative supply;
ii. the welfare of Italy.
(b) Suppose that Italy experiences biased growth towards wine. Analyze the effect of
this biased growth on
i. the world relative supply;
ii. the welfare of Italy.

3. Germany produces two goods, beer and wine. Germany specializes in the production of
beer and has (compared to France) a strong preference for consuming beer. Analyze the
effect of a transfer from Germany to France on the welfare of both countries.

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