(e) Interpret. 2. Ricardo (30 points, 6 each) Consider the 2 x 2 Ricardian model in the lecture notes of international trade. There are two countries, North and South, and two goods, 1 and 2. The labor requirement to produce good j E {1, 2} in country i E {N, S} is ajj. The labor endowment of country i E {N, S} is Li. Preferences are represented by a Cobb- Douglas utility function Q1Q2 " where Q; is the quantity of good j E {1,2} consumed and a E (0, 1) is a parameter. Markets are perfectly competitive. Labor can move across sectors 1 and 2 but not across countries. Take the price of good 1 to be the numeraire, p1 = 1. Denote the relative price of good 2 with p = pz/ p1 and wages with w; for i = N, S. (a) Find the autarky (no trade) equilibrium. Specify prices, wages, labor allo- cation and quantities produced. Like in class, you may drop the country subscript in this part of the exercise and make the derivations for a single country. Assume now that trade is frictionless. North has a comparative advantage in good 1, i.e., an1/aN2