Homework answers / question archive / Question : Assume that two countries (Pomerania and Ruthenia) produce and sell the same two commodities (steel and coal) at the following prices in their respective home markets before trade: ________________________________________________________________                                      Pomerania            Ruthenia                                          (dinars)              (marks) ________________________________________________________________ Unit price of steel                4

Question : Assume that two countries (Pomerania and Ruthenia) produce and sell the same two commodities (steel and coal) at the following prices in their respective home markets before trade: ________________________________________________________________                                      Pomerania            Ruthenia                                          (dinars)              (marks) ________________________________________________________________ Unit price of steel                4

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Question : Assume that two countries (Pomerania and Ruthenia) produce and sell the same two commodities (steel and coal) at the following prices in their respective home markets before trade:

________________________________________________________________

                                     Pomerania            Ruthenia

                                         (dinars)              (marks)

________________________________________________________________

Unit price of steel                4.00                   3.00

Unit price of coal                 2.00                   12.00

________________________________________________________________

Assume that reciprocal demand is 2.0 million units of steel and 1.0 million units of coal and assume that both countries have neither a trade deficit nor a trade surplus. Also assume that the market exchange rate is 1 dinar = 3 marks.

Calculate the per unit gains from trade and the total gains from trade for both countries.

 

 

 

Question 2 : Assume that two countries (Pomerania and Ruthenia) produce and sell the same two commodities (steel and coal) at the following prices in their respective home markets before trade:

________________________________________________________________

                                     Pomerania            Ruthenia

                                         (dinars)              (marks)

________________________________________________________________

Unit price of steel                2.00                   1.00

Unit price of coal                 1.00                    4.00

________________________________________________________________

Assume that reciprocal demand is 1.5 million units of steel and 0.8 million units of coal.

Is 1 dinar = 1.88 marks the correct market exchange rate ? (20 points)