1. Use the production possibilities below to answer this question
a. Draw domestic production possibilities for Alpha and Omega (hint: these are linear tradeoffs).
b. Suppose each country specializes in its comparative advantage, and the terms of trade are 1 ton of steel for 2 tons of wheat. Can Alpha and Omega both achieve a level of consumption outside of their production possibilities? Use the graphs from Part a to explain your answer.
c. Suppose in autarky (i.e. as a self-sufficient economy) both Alpha and Omega produce at point C on their respective production possibilities functions. Based on your answer to Part b, how much has total consumption increased for both Alpha and Omega?
2. Suppose the American Association of University Professors (AAUP) successfully coordinated and lobbied congress to pass a requirement that all professors at U.S. universities must have graduate degrees from U.S. universities.
a. How would this requirement affect the market for 4-year college degrees in the U.S.? Graph and explain your answer. What would happen to tuition and the number of degrees conferred?
b. How would this requirement affect the market for graduate degrees at universities outside the U.S.? Again, graph your answer and explain what would happen to both tuition and the number of degrees conferred.
c. Suppose that the requirement were instead that all professors at U.S. universities had to be U.S. citizens, but there was no requirement that professors graduate degrees be conferred by U.S. universities. How would this policy change your answers to Parts a and b?
3. Name a good or service that the U.S. exports that you believe is an example of U.S. firms comparative advantage.
a. Explain where you believe that comparative advantage comes from. Do you believe the comparative advantage is best explained by factor conditions, domestic rivalry, or network externalities from related and supporting industries? Explain your answer in 5-8 sentences.
Alphas production possibilities: A B C D E Steel (tons) 60 45 30 15 0 Wheat (tons) 0 15 30 45 60 Omegas production possibilities: A B C D E Steel (tons) 20 15 10 5 0 Wheat (tons) 0 15 30 45 60
b. Explain how the Product Life Cycle Theory applies to the good or service you chose, and which country(ies) you believe will be the future exporters of this product. Make your case in 4-6 sentences.
4. Medical Doctors earn much higher salaries in the U.S. than in most of the world. Salaries vary widely by specialty and region, but the average for all physicians is roughly $200,000 per year. Explain why, in 3-4 paragraphs. You may give more than one reason, but use the labor market for doctors services to explain your answer. A graph is not required, but it can clarify your thinking.
5. Using consumer behavior theory, i.e. utility-maximization theory, to explain how international trade makes consumers better off in terms of individual utility. Who is harmed by international trade? Explain how, using the tools of microeconomics. Your answer should be 3-4 paragraphs long and should include supply and demand graphs where appropriate.
6. In 3-4 sentences, explain how growth in international trade can lead to rising average wages for workers in developing economies. In 4-6 sentences, explain how growth in international trade can lead to rising average wages for workers in advanced economies. Use supply and demand models of the labor market in each of your answers.
