Development Economics
Problem Set 2
Sherif Khalifa 1. (a) What are the main causes of the World food crisis? (b) Discuss the agrarian systems prevalent in the Developing world that contribute to
such a crisis? 1 2. Consider the following graph for a privately owned natural resource:
MB/MC
MC 25 15 MB
10 Quantity 20 (a) The consumer surplus =
(b) The producer surplus = 3. Consider the following table, and assume the wage is $60:
Worker MPL APL 1 100 100 2 90 95 3 80 90 4 70 85 5 60 80 6 50 75 7 40 70 8 30 65 9 20 60 10 10 55 2 If the resource is privately owned:
(a) The employment level =
(b) The surplus =
If the resource is publicly owned:
(c) The employment level =
(d) The surplus = 4. Consider the following graph for the return to labor cultivating agricultural land.
Return to Labor 70 40 Wage MPL
20 APL
35 If the resource is privately owned:
(a) The employment level =
(b) The surplus =
If the resource is publicly owned:
(c) The employment level =
(d) The surplus = 3 Labor 5. Consider the following graph on the di¤erence between private costs and social costs
due to the pollution caused by the production of a certain good:
Price
MCS
MCP 25
20
15
MB 125 Quantity 200 (a) The percentage of the pollution tax paid by consumers = (b) The percentage of the pollution tax paid by producers = 6. Consider the following table about the technology of producing cars and TVs, where
labor is the only factor of production: 1 Car 1 TV Country 1 20 labor 5 labor Country 2 50 labor 25 labor (a) Country 1 has a comparative advantage in :
(b) Country 2 has a comparative advantage in : 4 (c) Assume that each country has 1000 workers, draw the production possibility frontier
of each country?
Car Car TV TV Country1 Country2 (d) The trade price:
(e) Assume that the autarky production is when both countries devote half of their labor
to produce each good. Now, suppose that country 1 devotes 40% of their labor to produce
cars and 60% to produce TVs, while country 2 devotes 75% of their labor to produce cars and
25% to produce TVs, and then they decide to trade such that the number of cars available for
consumption in both countries after trade is the same as in autarky. Complete the following
table: Autarky
Production & Consumption
Trade
Production
Trade
Consumption
Gains from Trade 5 Country 1 Country 2 Cars Cars TVs TVs 7. Consider the following production possibility frontiers of two countries: Manufacturing Manufacturing 20 25 10 20
8 5 4 3 5 7 10 20 Agriculture 2 Developing 3 5 10 Developed (a) The autarky price in the Developing country =
(b) The autarky price in the Developed country =
(c) The trade price between the two countries =
(d) The combination of production in autarky in the Developing country =
(e) The combination of production in autarky in the Developed country =
(f ) The combination of consumption in autarky in the Developing country =
(g) The combination of consumption in autarky in the Developed country =
(h) The combination of production in trade in the Developing country =
(i) The combination of production in trade in the Developed country =
(j) The combination of consumption in trade in the Developing country =
(k) The combination of consumption in trade in the Developed country = 6 Agriculture 8. Consider the following graph of the market for cars.
Price
S 70
60
40
D 10 15 30 17 40 In the case of autarky:
(a) The quantity of domestic car production =
(b) The price of domestic cars =
In the case of free trade:
(c) The quantity of imported cars =
(d) The price of cars =
If the country imposes a tari¤ on imported cars:
(e) The quantity of imported cars =
(f ) The tari¤ imposed on every imported car =
(g) The import revenues collected by the government = 7 Quantity 9. To produce a boat, you need wood as an intermediate good. If this country imports both boats and wood, a 10% tari¤ rate can be imposed on boat imports, and a 5% tari¤ rate
can be imposed on wood imports. The price of a boat is $1000 before the tari¤, and the price
of one unit of wood is $100. Knowing that three units of wood are required to produce one
boat.
(a) The value added before both tari¤s are imposed = (b) The value added after both tari¤s are imposed = (c) The value added after imposing a tari¤ on boats only = (d) The value added after imposing the tari¤ on wood only = (e) The e¤ective rate of protection after imposing both tari¤s = (f ) The e¤ective rate of protection if only the tari¤ on boats is imposed = (g) The e¤ective rate of protection if only the tari¤ on wood is imposed = 8 10. Consider the following balance of payments of a country: Item Amount Exports 35 Imports 65 Investment income 2 Debt service payments 20 Net remittances 5 Foreign direct investment 7 Foreign portfolio investment 8 Resident capital out‡ow 30 (a) The balance in the current account = (b) The balance in the capital account = 9 11. If the exchange rate between the Mexican Peso and the U.S.$ is 3 Pesos=1$. If this rate changed to 2 Pesos=1$.
(a) Are the Mexican exports cheaper or more expensive due to this change? (b) What can the Mexican policy makers do to return to the initial exchange rate? (c) Are the American exports cheaper or more expensive due to this change? (d) What can the American policy makers do to return to the initial exchange rate? If the exchange rate between the Mexican Peso and the U.S.$ is 3 Pesos=1$. If this rate
changed to 4 Pesos=1$.
(e) Are the Mexican exports cheaper or more expensive due to this change? (f ) What can the Mexican policy makers do to return to the initial exchange rate? (g) Are the American exports cheaper or more expensive due to this change? (h) What can the American policy makers do to return to the initial exchange rate? 10

 

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