5. (20 points) Consider two open economy countries (Country A and B), two goods (one tradable...

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5. (20 points) Consider two open economy countries (Country A and B), two goods (one tradable (T), and a nontradable(N)). Countries A and B have the following production functions for tradable and non-tradable goods: YA = ZLG K,-a Y# = L; K}¯ª -a YA = L, Ka Y = LÑKª 1-a Where Z > 1. (a) (5 points) Derive the marginal product of labour (MPL) for countries A and B for both types of goods. Demonstrate the MPL for tradable goods for country A is larger than country B. (b) (5 points) Now given the prices for the tradable goods in each country (P# and P#) and the prices for the non-tradable goods in each country (P and P) and recall the law of one price, demonstrate how wages in Country A are greater than wages in country B. (c) (5 points) Now demonstrate that P is greater than P. (d) (5 points) Explain the intuition behind this outcome. 5. (20 points) Consider two open economy countries (Country A and B), two goods (one tradable (T), and a nontradable(N)). Countries A and B have the following production functions for tradable and non-tradable goods: YA = ZLG K,-a Y# = L; K}¯ª -a YA = L, Ka Y = LÑKª 1-a Where Z > 1. (a) (5 points) Derive the marginal product of labour (MPL) for countries A and B for both types of goods. Demonstrate the MPL for tradable goods for country A is larger than country B. (b) (5 points) Now given the prices for the tradable goods in each country (P# and P#) and the prices for the non-tradable goods in each country (P and P) and recall the law of one price, demonstrate how wages in Country A are greater than wages in country B. (c) (5 points) Now demonstrate that P is greater than P. (d) (5 points) Explain the intuition behind this outcome.