Let the production possibilities frontier for the New England
1.
Let the
production possibilities frontier for the New England colonies be given by f = 30- 3c
where fis units of fish and cis units of crops. Likewise, let the production
possibilities frontier
for the Middle Atlantic colonies by given by f= 15- .75c.
a.
On a single graph, draw the
PPFs for the New England and Middle Atlantic colonies. You may assume that fand care restricted to
being greater than or equal tozero.
b.
Do the New England colonies or
do the Middle Atlantic colonies have a comparative advantage in fish? Use the
relative price of crops in terms of fish to prove your answer. Given your
answer, which region has a comparative advantage incrops?
c.
Suppose that each set of
colonies produces only the good in which they have a comparative advantage. How
many units of fish and how many units of crops will be produced?
d.
Suppose that the New England
colonies and the Middle Atlantic colonies agree to trade at a price of 1.5 fish
per unit of crops. Assuming that each region only produces the good for which it has a comparative advantage,
show graphically that at this price both regions consume 10 units of crops and
15 units of fish. Was this allocation feasible for either region prior totrade?
2.
According to the economic historian David Galenson, an illiterate 20
year old male traveling from England to
the American colonies would typically face an indenture lasting 56 months.
Younger workers faced longer indentures. In particular, Galenson showed that ceteris paribus, the effect of age on the length of the
indenture was asfollows:
Age in
years
Under 15
15
16
17
18
19
Additional
months
33
26
16
9
4
2
e.
Why did indenture contracts
require ever longer periods of service as the age of the servant declined? What
are these extra months of service attempting to recoup to the owner of
thecontract?
f.
Assume that all males traveling
to the colonies faced the same cost of travel and for the sake of this question
let that value equal $100. Assume further that the final owner of the contract
paid $100 to the ship’s captain. It then follows that $100 divided by the
number of months of the indenture measures the (average) value of the output
that the indentured servant produces eachmonth.
Using the data in the table above, for each age group in the table,
compute the (average) value of monthly revenue that an indentured servant
produced. Be sure to correctly measure the total number of months of the indenture.
Plot your results placing the age of the indentured servant along the
horizontal axis.
g.
One can interpret the plot that
you constructed as a type of production function. Why? Is the “marginal
product” everywhere downward sloping for this producing function? Why or
whynot?
3.
According to Table 4.4, the American colonies ran a balance of trade
deficit with Great Britain and Ireland (and less importantly with the West
Indies) that more than offset balance of trade surpluses with Southern Europe and
Africa.
.jpg” alt=”../Desktop/IMG_3673.JPG”>
h.
Which colonies were primarily
responsible for the trade deficit with Great Britain and Ireland? Which
colonies were roughly balanced in their trade with Great Britain and Ireland?
i.
Generally speaking, how did the
colonies pay for their trade deficit withEngland?
j.
Once these payments and other
receipts from England are accounted for, did the colonies run a balance of
payments deficit with England of about the same size as its trade deficit? Much
larger? Muchsmaller?
k.
Since the accounting offset to
this balance of payments deficit was the amount of gold or other forms of
indebtedness that is acquired by England from the colonies, despite the trade
deficit, did the colonies find it necessary to send much gold or debt to
England? Why or whynot?
4.
Why were the sales contracts of British exporters priced at the
market value of colonial currency rather than at the par value of colonial
currency? What was the most common source of the fluctuation in the market
value of colonial currency?
