Using the figure above, demonstrate what happens to the ...

[sheilaspns]

Using the figure above, demonstrate what happens to the composition of production (that is quantity of cloth per 1 unit of food) in Australia once trade is established between the two countries.
 
  Which country will export cloth? What happens to the relative income of workers in Australia as a result of trade? Does it increase or decrease? Would land owners in Australia lobby for or against free trade? Would land owners in Australia lobby for or against free admittance of immigrant workers?

Question 2

For the following question, assume the following facts:
 
  (1 ) Chase (which is located in the United States) has a 20 reserve requirement imposed by the government.
  (2 ) Bank of Germany has no reserve requirements.
  (3 ) Both banks may invest at an 8 interest rate.
  (4 ) Both banks have fixed costs of 3 per deposit made.
  What is the difference between the minimum interest rates each bank can offer and still make a profit if the deposit is 500 for 1 year?
  A) 0 - Both banks can offer the same rate.
  B) 1
  C) 1.6
  D) 0.4
  E) 20

[brbarasa]

Answer to Question 1

The proportion of food to cloth will increase in the production of Australia Sri Lanka will export cloth. The relative (and real) incomes of workers will fall in Australia as a result of trade. Land Owners in Australia should lobby in favor of trade. They would also lobby for free labor mobility (of workers into Australia), since the marginal product of labor is high, the owners of land have much (Ricardian) rents to gain from an inflow of workers.

Answer to Question 2

C