This is international trade

Explain in up to 100 words the relationship between Openness and economic development by calculating the correlation coefficient between GDP per capita (proxy for economic development) and Openness for Mexico and Argentina, respectively. [Here you have to use the CORREL command in Excel]. (6 marks)

Consider the following model of trade between Home and Foreign. Assume throughout that those two countries are the only two countries in the world, at least for purposes of trade. There are two goods: Tables and Chairs. Consumers always spend two fifths of their income on chairs and the remainder on tables. The only factor of production is labour. Each home country worker can produce 1 table or 4 chairs per unit of time, while each foreign worker can produce 2 tables or 2 chairs per unit of time. There are 20 workers in Home and 30 in Foreign.

(a) Which country has an absolute advantage in tables? In chairs? (2 marks)

(b) Whichcountryhasacomparativeadvantageintables?Inchairs? (2 marks)

(c) Draw the typical worker’s budget line in both countries (put chairs on the vertical axis and tables on the horizontal axis). (2 marks)

(d) Draw the production possibility frontier for each country (put chairs on the vertical axis and tables on the horizontal axis). (2 marks)

(e) Find the autarky relative price of tables in both countries (i.e., the price of table divided by the price of chair). (2 marks)

(f) What is the optimal consumption and production for each country under autarky? (2 marks)

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