ECON A822F: Economic Analysis in Global Market

ECON A822F: Economic Analysis in Global Market
(September 2020)
Test-Assignment 1
This assignment carries 20% of the mark for the course.
Please answer ALL the questions, and write down the steps in your answers.
Total marks: 100
Due Date: 11:59pm of Sunday 25
th October 2020
Submission method: Via OLE. Choose “Assignment 1”
Late assignments will attract a penalty of 10% per day.
Final Marks
(MARKER(S) ONLY)
Name:
Student ID:
INSTRUCTIONS:
1. Answer ALL questions.
2. Read the instructions of each question carefully.
3. Please include all steps in your answers. If you used a calculator or
Excel to find some numbers, make a note that those numbers came from
a machine.
4. If you draw diagrams, please make sure they are clearly presented.
人文社會科學院 School of Arts and Social Sciences
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Guide to submission
File format and naming for submission
Please make sure that your submission includes the first page of this file as a
MS Word or PDF document, and TYPE in your name and student number.
Make sure that all the material of your assignment is included in a single file
when you submit. If you have photos, for example of graphs that you drew
by hand on a piece of paper, please insert them into one single word file, and
make sure that the quality of the pictures allows the marker to read them
properly.
Steps for submission:
First, click ‘Submission’ in the bottom right.
Second, go into ‘Assignment 1’.
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Lastly, make sure you attach your file on this page, and then submit.
Some notes on submission and writing your answers:
1. If you need to calculate any numerical answer, please provide steps to the
calculations. While some calculations may require a calculator, just
giving the answer directly without explanation or intermediate steps will
not allow readers of your answer to understand your logic. If the answer
turns out to be wrong, the absence of intermediate steps will also not
allow markers to give partial credit.
2. As far as possible, please organise the steps and points of discussion you
wish to make by placing them in a coherent and logical order. Ask
yourself how you would like an answer to be organised if you were going to
have to read it.
3. Avoidance of plagiarism is essential. Even though the steps of
calculation questions may be highly similar, please use your own words to
explain your logic. If you need to quote lines or passages from books or
journal articles, make sure you give proper citations. Examples of
citations and references are provided in the lecture notes. Any work
that is found to have been plagiarised will result in a mark of zero.
4. You may also like to draw diagram to answer some of the questions,
whether on the computer or by hand on paper. If so, please draw them
clearly and label them so that readers can understand them clearly.
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There are 2 questions in this test-assignment. Answer all questions.
References:
Lecture notes topics 1 to 3.
Krugman, P. R., M. Obstfeld, and M. J. Melitz (2018), International
Economics: Theory and Policy, 11th edition, Pearson. ISBN 9781292214870.
Question 1
Suppose there are only two countries in the world, Country A and Country B.
They can each produce two products, Good X and Good Y. Labour is the only
factor input in the production of both products. There are 100 workers in
Country A and 250 workers in Country B.
Figure 1 Production possibility frontiers for two countries
(a) Please find the opportunity costs for producing one unit of Good X and
one unit of Good Y for both Countries A and B. Explain clearly in which
good(s) do both Countries A and B have an absolute and comparative
advantage in.
(30 marks)
(b) Right now, both countries are now producing at point C (with half effort
in producing Goods X and Y) and they do not trade with each other.
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Making use of your answer in part (a), explain how they should specialize
their production to raise world output above their current level. By how
much will world output of each good be increased through this
specialization?
(20 marks)
Question 2
Suppose there are two countries in the world, Home and Foreign, which
trade freely. There are only two goods in this world. X-ray machines (Good
X) requires capital and labour to produce, and yoghurt (Good Y) requires
land and labour to produce. Currently, Home imports Good X and exports
Good Y to Foreign. One day, producers in Home (but not in Foreign)
innovates and finds an improvement in its technology for producing Good X.
The Home X industry becomes more productive by 10% as a result. There is
no change in the productivities of any other good in either country. What
will this do to
(a) The world equilibrium relative price of X?
(15 marks)
(b) The real wage of labour in Home’s X industry?
(20 marks)
(c) The purchasing power of land rent in Foreign’s Y industry?
(15 marks)
Make sure you explain your answers. If you use diagrams, please draw and
label them clearly.
[END OF ASSIGNMENT]

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