Assignment 1
Questions Please read each question very carefully to ensure your full comprehension of the question. Question 1 (35 points): The purpose of this question is to examine the rising importance of international trade for a selected country. Choose any ONE of the following five countries: Italy, Singapore, Colombia, United Stated of America and South Africa; and then find the value of merchandise trade for that selected country as a percentage of its GDP for the period from 1980 to 2018. Then, plot the data as a time series diagram and explain how the role of international trade has evolved for this country in the given time period. Data: Go to the World Bank site at http://data.worldbank.org/indicator/TG.VAL.TOTL.GD.ZS/cou ntries?display=default Note: The following 1:22min YouTube video shows how to plot time series data in Excel. https://www.youtube.com/watch?v=_CRRWnkbyfA [The answer for this question should be limited to one page (1.5 space, 250 words max) including the graph. You are required to do a bit of external research to explain the trend for your chosen country] Question 2 (35 points):
The gravity model of trade predicts that the volume of trade between two countries is positively related to the size of the two economies. To examine this relationship, find the top 20 trading partners for any ONE of the following five countries: Mexico, Bangladesh, Italy, Bolivia and Nigeria ; and then find the value of export (for the country of your choice) to each trading partner as well their GDPs for the year 2018. Use Microsoft Excel or any other spreadsheet program to make a scatter plot that focuses on size (GDP) as a determinant of trade. The figure should have GDP (as a percent of the GDP of all top 20 export destinations) on the horizontal axis, and exports (as a percent of the exports to all top 20 export destinations) on the vertical axis. Explain whether your scatter plot shows any correlation between bilateral trade volume and the size of an economy as predicted by the gravity model of trade. Note: As data on exports are in millions, convert the GDPs into millions as well. Data: Go to the International Monetary Fund site at http://data.imf.org/?sk=9D6028D4-F14A-464C-A2F2- 59B2CD424B85&sId=1514498277103 to find the volume of export to each of the top 20 trading partners of your selected country. If you click on the name of the first country for which export data is shown on this link, you will see a drop down menu for list of countries on which data is available. Select the country of your choice from this list and the appropriate year (2018) shown at the bottom of the data table. To find data on GDP, go to the World Bank Web site at http://data.worldbank.org/. Select GDP in current $US in the navigation field “Find an Indicator”. This will lead you to the page with GDP data for all countries. Collect GDP data for the trading partners of your selected country and make sure you are choosing the appropriate year (2018). [The answer for this question should be limited to one page (1.5 space, 250 words max) including the graph.]

Question 3 (30 Points)
Assume that Home and Foreign produce only two goods – wheat and carrots. Home has 1000 units of labour available. In Home, the unit labour requirement in wheat production is 4 and in carrot production it is
2. On the other hand, Foreign has 750 units of labour available. Foreign’s unit labour requirement in wheat production is 5, while in carrot production it is
1. a. Graph both Home’s and Foreign’s production possibility frontiers. [3 points]
b. Calculate the opportunity cost of producing wheat in terms of carrots in both Home and Foreign. [3 points]
c. In the absence of trade, what would the price of wheat in terms of carrots be in both countries? Why? [3 points]
d. Construct the world relative supply curve. You are required to explain and show on your diagram the relative prices at which the relative supply curve is horizontal and the relative quantity at which the relative supply curve if vertical. [3 points] Now suppose world relative demand takes the following form: Demand for wheat/demand for carrots = price of carrots/price of wheat.
e. Graph the world relative demand curve along with the world relative supply curve. You are required to show at least three points that you used to derive the relative demand curve.[3 points]
f. What is the free-trade equilibrium relative price of Wheat? [3 points]
g. Describe the pattern of specialization and trade. [3 points]
h. Show that both Home and Foreign gain from trade. [3 points]
i. Suppose that the number of workers decreases from 1000 to 600 in Home. Find the new equilibrium relative price and show it on the diagram. [3 points]
j. Suppose that Home has now 600 workers, but they are twice as productive in both industries as we have been assuming. Consider Foreign to have the initial 750 workers only and the same productivity in both industries. Construct the world relative supply curve and determine the equilibrium relative price. How do the gains from trade compare with those in the case described in problem h. [3 points]

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