Question: Consider the Ricardian model with two countries ( Canada and the United States ) and two goods ( apples a and oranges o ) .

Consider the Ricardian model with two countries (Canada and the United States) and two goods (apples a and oranges o). Assume that unit labor requirements are as follows where ajc is the unit labor requirement for good j in country c :
aaUS=2,aaCan=4,aoUS=2,aoCan=12
Assume consumer preferences in both countries are given by U=(Ca)(Co)1- with in(0,1).papo is the relative price of apples to oranges. Suppose that we are in free trade and that the relative demand for Apples increases but papo does not change.
How many of the following five statements are inconsistent with the information above?
The United States initially produces both apples and oranges.
Initially, Canada produces only oranges and the United States produces only apples.
Neither country gains from the change in relative demand.
PaPo=13 in the initial equilibirum
PaPo=12 in the initial equilibrium
Consider the Ricardian model with two countries (

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer
Step: 1 Unlock blur-text-image
Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock
Step: 3 Unlock

Students Have Also Explored These Related Economics Questions!