Consider a Ricardian model with money. The output per man hour of good X and good Y are respectively 5 units and 4 units in the USA, and 1 unit and 2 units in China. Both economies are perfectly competitive. Assume USD is the accepted international currency.

1. Suppose trade between USA and China are prohibited. In the initial autarkic competitive equilibrium, the wages per hour in the USA and China are respectively US$ 1 and CNY 1.

1. What are the prices (in US$) of X and Y in the USA?

2. What are the prices (in CNY) of X and Y in China?

3. How many units of X or Y can workers in the USA purchase per hour of work?

4. How many units of X or Y can workers in China purchase per hour of work?

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Lets begin by tabulating the information provided to us Country Units of GoodX Units of GoodY USA 5 ... View the full answer