Transcription of Study Guide Review Question Solutions
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Study Guide Review Question Solutions
Study Guide Review Question Solutions Answers to Chapter 2 Review Questions 1. If we put the following countries on Figure 2-2, would we expect them to be on the 45-degree line, above it, or below it? Why? a. Canada: As we saw later in the chapter, Canada is far above the 45-degree line. In large part due to its proximity, it trades far more with the United States than the size of its GDP would predict. b. Mongolia: Below the line. Mongolia is far away from the United States is landlocked, which makes transport expensive, and has no particular strong ties to the United States so we might expect it to trade less with the United States than even its relatively small GDP predicts. c. Norway: On the line. Norway is much like other European countries with regards to distance and general ties to the United States. As Sweden is right on the line, we might expect Norway to also be on the line.
216 Krugman/Obstfeld † International Economics: Theory and Policy, Eighth Edition d. Given pr/pB = 2, each country’s production specialization can be determined by comparing the wages which workers earn in the tennis racket industry with those earned in the bat industry. The Home worker earns pr/aLr = 2/2 = 1 producing rackets and pB/aLB = 1/6 producing bats.
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