Question 1 The two countries selected are Argentina and Mexico. Openness (%)=(Imports of goods & services + Exports of good & services)/ GDP (current U.S.$). Given below is the table of the openness for the two countries in % As depicted by the graph above one can see that both the countries have a general upward trend of openness. An outlier is observed in Argentina’s 2002 openness and Mexico’s 1993 openness. There was a plummeted in the first 5 years and escalated between 1994 and1996. Mexico’s openness continues to increase steadily following. Argentina’s openness increases steadily for the first 12 years and has a sudden increase between 2001-2002. We can see that the gap between the two is constant. Question 2 For Mexico, the correlation figure is 0.74 meaning there is a strong positive correlation between openness and GDP per capita. Going by the correlation coefficient, they have a direct relationship, which means that as openness increases/decreases, GDP per capita of Mexico rises/falls. For Argentina, the correlation figure is -0.08 meaning there is a weak negative correlation between openness and GDP per capita. Going by the correlation coefficient, they have an inverse relationship. However, it doesn’t necessarily imply that as openness increases/decreases, GDP per capita of Argentina falls/rises. Mexico’s correlation coefficient is greater than Argentina’s correlation coefficient meaning it can be seen that openness increases/decreases the GDP per capita will rise/fall more consistently for Mexico than Argentina. Other factors such as domestic consumption and investment have to be taken into considerations as they affect the economic development of the respective countries. Question 3 Part a) Factors of Production Table (Units) Chair (Units) Home 20 1 4 Foreign 30 2 2 A country has an absolute advantage in a commodity if its workers have superior production capabilities than the workers in the other country. We can see that Home country has absolute advantage in producing chairs as the workers can produce 4 chairs compared to 2 chairs produced by the other country. Foreign country has absolute advantage in producing tables as their workers can produce 2 tables compared to 1. Part b) Country OC of each unit of table OC of each unit of chair Home 4/1= 4 units of chair 1/4= 0.25 unit of chair Foreign 2/2= 1 unit of chair 2/2= 1 unit of table A country has a comparative advantage in a commodity if its opportunity cost in producing a particular commodity is lower than the other country’s. As illustrated by the table above, Home country has the comparative advantage in producing chairs and Foreign country has the comparative advantage in producing tables. Part c) Budget constraints for Home and Foreign country respectively. Part d) Production possibility frontier for Home and Foreign country respectively. Part e) Autarky relative price is the price of a commodity within a country where the commodity is not trade with another country. It is a measure of comparative advantage. Country Table (units) Chair (units) Home 1 4 Foreign 2 2 The relative price for both countries for tables can be found by determining the opportunity cost for tables in each case: Home country: P_t/P_c =1/4=0.25 i.e 0.3 units Foreign country: P_t1/P_c1 =2/2=1 unit .