Question: need help with this one, thanks guys ! 3. (40 points} There are two islands Island A, Island B, both of which can produce smartphones
need help with this one, thanks guys !


3. (40 points} There are two islands Island A, Island B, both of which can produce smartphones and cigarettes, but with different productivity. Consider both goods as normal goods here. To simplify the question, let's assume the production only involves labor (i.e., labour is the sole factor of production). A has 60 units of labor and B has 90 units of labor. Island Unit labor requirement (smartphone) Unit labor requirement (cigarette) A 5 5/2 B 9 3 (a) (10 points) Suppose A, B cannot trade, and their people are producing both smartphones and cigarettes indifferentlv. Decide the price ratio between smartphone and cigarette (pa/pl?) on A and B. (b) (10 points) One day, A and B start to trade. Decide the range of the price ratio between smartphone and cigarette (pS/ps) such that each island produces one ECON-423 Assignment Fall 2020 kind of product. With pig/p? how much smartphone Q5 and cigarette QC do the two islands produce now? (c) (10 points) Assume 395/338 = /2 , use the result of (b) to calculate the relative wage between A and B. (d) (10 points) Assume A and B were isolated at first, but they suddenly found each other and started trading at pS/pc = /2 with no cost. Fill the blanks in the table and show that both A and B are better-off because of trade. (You can argue this in 2-3 sentences, but not necessary. Filling the table correctly gives full points) Smartphones Cigarettes- Smartphones Cigarettes Change in Change in withouttrade without with withtrade smartphones cigarettes trade trade IslandA 6 12 Island B 5 15 6 +1
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