1.

( Export ¿ ¿ t+ Import t )
Opennesst = ¿
GDP t

According to the formula, to calculate annual openness percentage in each country,

we should first get the GDP data of each country in each year, then get the annual
export and import data and plus them altogether and divide the GDP.

2. Openness Percentage Comparison Graph of Italy and Sweden in 2003-2015

and Explanation of their performance

Ope nne s s P e r c e nta g e Co m pa r i so n o f Ita l y & Swe de n fr o m

2 0 0 3 -2 0 1 5

Italy Sweden

100.00%
90.00%
80.00%
70.00%
60.00%
50.00%
40.00%
30.00%
20.00%
10.00%
0.00%
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

This graph shows the annually changes in each country in a clearer way. The orange
line stands for Sweden and the blue line stands for Italy. We can clear see that
openness percentage in Sweden is always higher than Italy. Totally speaking, both
counties stated a raise in 2003 to 2008, then suffered a fall between 2008 and 2009,
after that both countries gradually recovered. Separately speaking, in Sweden, the
openness percentage had grown rapidly in 2003 to 2008, and in 2008 it reached the
peak. Between 2008 and 2009, the openness percentage fell almost 10% and the later
recovery was not as fast as the early time anymore, between 2011 and 2013, the
percentage again fell a little bit, after that, it raised anew. In Italy, the speed of
percentage growth in 2003 to 2008 were nearly the same, between 2005 and 2006 it
was a little bit faster than the other years, and between 2008 and 2009, it fell nearly
10% but recovered fast to its previous peak, and still raised, but its speed slowed
down.

3. Analysis about the relationship between openness and economic development

The correlation coefficient is used to explain the relative degree between two things,
here is between openness and GDP per capita. After calculation, we got the results
that the correlation coefficient in Italy approximately equals to 0.4, and in Sweden
approximately equals to 0.6. The higher the number is, the more relative it shows. As
for Italy, the correlation coefficient shows that the relevant between openness and
GDP per capita is not that strong, which means the relationship between openness and
economic development is not that strong, openness in Italy has not much impact on its
economic development. As for Sweden, the data shows that the relationship between
openness and economic development is strong, which means that Swedish economic
development relies much on the openness, the more open it is, the better its economy
will be. The results of these correlation coefficient shows the linear correlation in both
countries although the relationship varies in strength, it is positive linear correlation
which means the economic development will get better with wider openness.

4.

a) Italy has the absolute advantage in shoes, while Sweden has the absolute
 advantage in calculators.

For shoes, the total production in Sweden is 1 (productive capability of one

Swedenn worker in the unit time) *80 (total number of Swedenn workers), which
equals 80, while the total production in Italy is 4 (productive capability of one
Italy worker in the unit time) *60 (total number of Italy workers), which equals
240. Because 240>80, Italy has the absolute advantage in shoes.

For calculators, the method is the same as above, so the total production in
Sweden is 2*80=160, while in Italy it is 2*60=120. Because 160>120, Sweden
has the absolute advantage in calculators.

b) The opportunity cost of shoes in Sweden is 1/2 unit of calculators, while the
opportunity cost of shoes in Italy is 2 units of calculators. Therefore, Italy has the
comparable advantage in shoes.

The opportunity cost of calculators in Sweden is 2 units of shoes, while the

opportunity cost of calculators in Italy is 1/2 unit of shoes. Therefore, Sweden has
the comparable advantage in calculators.

c) For Sweden, the production possibility frontier is as following, the horizontal axis
represents the calculators, and the vertical axis represents the shoes.
 90

80

70

60

50
k=1/2
40

30

20

10

0
0 20 40 60 80 100 120 140 160 180

From the table we can see the production possibility frontier is 1/2.

300

250

200

150
k=2

100

50

0
0 20 40 60 80 100 120 140

For Italy, the production possibility frontier is as following, the horizontal axis
represents the calculators, and the vertical axis represents the shoes. From the
table, we can see the production possibility frontier is 2.

e) According the question, the assumption is that consumers in both countries always
spend half of their income on shoes and the rest half on calculators, therefore, in
Sweden,

 if P c , then QC
s
>0.5 S
=∞
P Q

 if P c , then QC
<0.5 =0
Ps QS

 if P c , then consumers are indifferent

s
=0.5
P
Pc
s
P

RS
0.5

c
Q
s
Q

In Italy,

 If P c , then QC
s
>2 S
=∞
P Q

 If P c , then QC
s
<2 S
=0
P Q

 If P c , then consumers is indifferent

s
=2
P

c
P
s
P
RS
2

Qc
s
Q
 As a conclusion, the autarky relative price of calculators in Sweden is 1/2, and in
Italy is 2.

f)

0.5 1 S

Sweden
The optimal consumption and production for Sweden is 0.5 unit of shoes and 2
unit of calculators.
 C

0.5

1 2 S

Italy

The optimal consumption and production for Italy is 1 unit of shoes and 0.5 unit
of calculators.