Economics – Autarky

1. This assignment is to be submitted electronically on AVENUE TO LEARN on JANUARY 29, 2018 (MONDAY) BEFORE 10.00pm.LATE ONLINE SUBMISSION WILL BE GRADED ZERO.
2. You may submit a hard copy of this assignment in Krishna’s office (KTH 436) on JANUARY 29between 2.00pm and 3.00pm. LATE SUBMISSION OF THE HARD COPY (after 3.00p.m.) OR SLIPPING THE ASSIGNMENT UNDER THE INSTRUCTOR’S OFFICE DOOR OR SUBMITTING THE HARD COPY OF THE ASSIGNMENT ELSEWHERE WILL NOT BE ACCEPTED.
3. This assignment contains one short answer type question from Chapter 2. The question has 3 subparts.
4. Please answer the questions in the space provided. ANSWERS SUBMITTED OTHERWISE WILL NOT BE GRADED.
5. Your answers must be yours only! If there is any indication of copying the answers or mutual plagiarism, the grades for all parties involved will be zero, no matter who has copied from whom.

QUESTION 1:   Refer to the graph below

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Suppose there are 2 countries Home and Foreign both using labour to produce wheat and cloth. The number of workers in Home is 50 and one worker can produce 4 bushels of wheat or 2 yards of cloth. In foreign the number of workers is 100 and one worker can produce 1 bushel of wheat or 1 yard of cloth.In autarky, home produces and consumes 50 units of cloth and 100 units of wheat and the foreign country produces and consumes 50.

Now we allow for trade and assume suppose that Home is willing to export up to 100 bushels of wheat at its no-trade price of PW/PC = ½.

1. Given the figure above, what is the world relative price of wheat (at point D)? (1 mark)

ANSWER SPACE:

1. Using this world equilibrium price, draw 2 well labeled graphs indicating the autarky and trade equilibrium in Home and in Foreign, and show the production point and consumption point in each country in autarky and after trade. On the graph you must indicate the numerical magnitude for each of those to avoid grade penalty. (NOTE YOU NEED TO FIND /CALCULATE HOME COUNTRY’s CONSUMPTION OF CLOTH AFTER TRADE. Once you obtain that information, you’ll be able to find foreign consumption of wheat and cloth after trade using home after trade export and import decision) (8 marks)

ANSWER SPACE for part b: