Assume that Redland is more productive at producing all goods compared to Bluestan. Which country will have higher income?

1. Assume that there are only two countries in the world, Redland and Bluestan, and that there are only two goods, bicycles and corn. Bicycles are labour intensive to make, and corn is land intensive to make.

1. (2) Assume that Redland is more productive at producing all goods compared to Bluestan. Which country will have higher income? Please explain your

1. (4) Why might Redland want to trade with Bluestan, even if it is more productive at producing all goods?

1. Now assume a slightly different situation: Redland has an absolute advantage in corn (bicycles are expensive and corn is cheap in Redland), and Bluestan has an absolute advantage in bicycles (corn is expensive and bicycles are cheap in Bluestan). Under these conditions, Redland and Bluestan sign a free trade deal, and start to trade with each other (they go from having no trade to perfectly free trade).

1. (2) Which country will import corn? import bicycles? export corn? export bicycles? Why?

1. (2) What will happen to prices of corn and prices of bicycles in each country, and why?

• (2) In the short run, the labourers in which country will gain? lose? The landowners in which country will gain? lose?

1. (4) Using Stolper-Samuelson theory, how will the labourers and landowners in each country be affected in the long run? Explain

2. The United States is Canada’s largest trading partner. However, China has also emerged as an important trading partner for Canada, and although we do not trade with them nearly as much as we do with the US, the percentage of our total trade with the US has declined while the percentage with China has

1. (4) Using the Heckscher-Ohlin (H-O) theory, identify one product you would predict Canada would export to China and one product we would import from China. Be sure to explain why Canada would import and export each of these

1. (4) As China’s economy continues to grow, would we expect to see the trade patterns H-O predicts between China and Canada continue or change? Why?

3. The President of the United States has imposed high tariffs on hundreds of billions of dollars worth of imports from

1. (4) Please provide two reasons that explain why this policy is bad for the US

1. (4) Despite being bad for the US economy as a whole, it is still a popular policy among some specific groups of Americans. Please name one such group and explain why they would be in support of the policy. Also explain how such a relatively small group can persuade the president to enact a policy that is good for them but not good for the country as a

1. (4) As an emerging expert on the topic of trade, please give two policy recommendations America could adopt to help people that are losing from increased trade with

4. A former graduate of the MGM program has recently invented a matter teleporter, a revolutionary and completely unique device that transports physical objects across great distances instantly (think of the way a telephone transports your voice over great distances instantly, but in this case it is any physical object such as a box or a coffee mug. These machines are commonly seen in futuristic TV shows and movies, for example Star Trek). She is looking to start a business selling this new technologically advanced machine and has asked you for your business

1. (4) Please explain to her how industrial clusters and external economies of scale can benefit businesses.

1. (4) Please explain to her what an internal economy of scale is and how it could benefit her business.

1. (4) If only one or two other companies will be able to start manufacturing teleporters and compete with her business, what form of competition is likely to arise in her industry and what does that mean for her future pricing of teleporters?

5. Please conduct a Heckscher-Ohlin analysis of your assigned country (from your assign 1 essay) by answering the following questions.

1. (4) What “factors of production” are relatively abundant and which are relatively scarce in your country? Be sure to explain

1. (4) Using the H-O theory, what are 2 products that we would expect your country to export to Canada, and what are 2 products we would expect your country to import from

(4) What is an example of a product that has intra-industry trade between your country and another country (name the other country)? What is the reason that product has intra-industry