(3) How much does country A export and import of goods 1 and 2? 2. ENDOWMENT MODEL...

 (3) How much does country A export and import of goods 1 and 2?

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2. ENDOWMENT MODEL Consider a world with two goods and many countries. Total world endowment of good 1 is 1000 units and of good 2 is 5000 units. All countries share the same Cobb-Douglas preferences with an expenditure share on good 1 and on good 2. That is U(C₁, C₂) = C1/C2/³. Suppose good 1 is the numeraire (i.e., nominal indeterminacy is avoided by setting the price of good to unity, pi= 1). Country A has an endowment of 200 units of good 1 and 100 units of good 2. (1) What are the prices of the two goods p₁ and p2 in the world economy? (2) What is the income of country A? 2. ENDOWMENT MODEL Consider a world with two goods and many countries. Total world endowment of good 1 is 1000 units and of good 2 is 5000 units. All countries share the same Cobb-Douglas preferences with an expenditure share on good 1 and on good 2. That is U(C₁, C₂) = C1/C2/³. Suppose good 1 is the numeraire (i.e., nominal indeterminacy is avoided by setting the price of good to unity, pi= 1). Country A has an endowment of 200 units of good 1 and 100 units of good 2. (1) What are the prices of the two goods p₁ and p2 in the world economy? (2) What is the income of country A?

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