For this question, use the standard neoclassical trade model. Suppose the world consists of two countries:...

  

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For this question, use the standard neoclassical trade model. Suppose the world consists of two countries: China and Japan. There are two goods: Cars (good 1) and Electronics (good 2). Initially, Japan exports cars and imports electronics. a) Use a diagram that has quantity of good 2 on the y-axis and of good 1 on the x-axis from the perspective of China. The diagram must incorporate the production possibility frontier of China, as well as relevant iso-value lines and indifference curves. Suppose China's terms of trade increase. Use your diagram to show how national welfare in China changes. b) Suppose an earthquake damages car factories in Japan. Due to these damages, Japan's capability to produce cars decreases, but to the extent that Japan still remains an exporter of cars. What is the effect of Japanese negative growth in the car industry on China's terms of trade and welfare? Provide intuition for your result. For this question, use the standard neoclassical trade model. Suppose the world consists of two countries: China and Japan. There are two goods: Cars (good 1) and Electronics (good 2). Initially, Japan exports cars and imports electronics. a) Use a diagram that has quantity of good 2 on the y-axis and of good 1 on the x-axis from the perspective of China. The diagram must incorporate the production possibility frontier of China, as well as relevant iso-value lines and indifference curves. Suppose China's terms of trade increase. Use your diagram to show how national welfare in China changes. b) Suppose an earthquake damages car factories in Japan. Due to these damages, Japan's capability to produce cars decreases, but to the extent that Japan still remains an exporter of cars. What is the effect of Japanese negative growth in the car industry on China's terms of trade and welfare? Provide intuition for your result.

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Standard Trade Model is the general model that of international trade The Recardian Theory Specific ... View the full answer