A country contains two types of people: engineers denoted by E, and data scientists denoted by D.

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Question:

A country contains two types of people: engineers denoted by E, and data scientists denoted by D. Each can produce goods in the primary sector (like oil and gas), P, or the tech sector denoted by T. It takes ‘a’ units of time for an engineer to produce one unit of output in the P sector, and ‘b’ units of time to produce one unit of output in the T sector. It takes ‘c’ units of time for a data scientist to produce one unit of output in the P sector, and ‘d’ units of time to produce one unit of output in the T sector. There are E engineers in the economy and D data scientists each with one unit of time. Engineers and Data scientists have identical and homothetic tastes defined over the two goods P and T. Assume both goods must always be consumed (indifference curves do not hit axes). All parameters {a,b,c,d} are positive real numbers. Label all diagrams neatly and completely.

1.1) 5%. What must be true about the relationship between {a,b,c,d} for Engineers to have a comparative advantage in the primary sector relative to Data Scientists? Explain what having a comparative advantage means.

1.2)5%. What must be true about the relationship among {a, b, c, d} for Data Scientists to have an absolute advantage in both P and T over Engineers? Explain what having an absolute advantage means.

1.3) 10%. Assume all Engineers are in Alberta and all Data Scientists are in B.C. for all of the remaining questions. Assume BC and Alberta do not trade with each other. Then in autarky, in Alberta, what is the relative price of primary products to high tech products in equilibrium? In autarky, in B.C., what is the relative price of primary products to high tech products in equilibrium? Explain why.

1.4)15%. Assume (parameter values are such that) Alberta has a comparative advantage in primary products relative to BC. Let Alberta and BC now trade with each other. Draw a relative supply and demand curve diagram showing the possible trading equilibria that could result. If in fact, we knew that Alberta produces Tech products in the trading equilibrium, identify this equilibrium in your diagram, and tell me how the wages for Engineers in Alberta and wages for Data Scientists in BC. are related (in terms of parameters like a,b,c,d,..etc.). Could Engineers have a higher real income than Data Scientists in this equilibrium? Explain.

1.5)15%. Again, assume BC and Alberta trade and Alberta has a comparative advantage in primary products. But now we know that both Engineers and Data Scientists spend half their income on T tech products at any prices and income levels. If a free trade equilibrium is to result where Alberta is completely specialized in the production of primary products and BC is

completely specialized in the production of Tech products what must be true about the relationship among the parameters? (for example, a,b,c,d, D, and E). Hint: find RD, graph RS and label points! Then use logical deduction and don’t panic – self-trust is the first secret of success.