Problem 6. Consider the table below. Each entry corresponds to the amount of hours of work required to produce one unit of wine or coke in the United States and Italy, respectively. Assume that labor is mobile across sectors of production in each country, but immobile across countries. Good United States Italy Wine (W) 6 9 Coke (C) 3 5 We will also introduce some wages and exchange rates. Let's denote 'WUS as the hourly wage rate per item in the US and WIN\" as the hourly wage rate per item in Italy, identical across production sectors. Also, E is the exchange rate that converts one unit of one unit of United States dollars ($) into one unit of Italy's euros (). a) Derive the conditions for the relative wage ratio between the US and Italy, such that trade will occur according to the concept of comparative advantage. [Hint: First derive the comparative advantage of each country. Assume that the price of each good is the product of the hourly wage rate and the technical coefcient of the respective country. Then think about which price ratio would render the countries indierent between trading and not trading. Finally, think about which relative wage ratio would lead to trade between these two countries] b) Consider the case where the Italian hourly wage (in euros) is 78% of the US hourly wage (in dollars). Also, assume that one US dollar buys 1.2 euros. Will trade along the lines of comparative advantage occur in this case? [Hint First, thinlc about what would be the ratio between wages in the two countries, taking into account the exchange rate] 0) Now, imagine you are the a politician in the Italian government responsible for negotiating a new collective agreement with labor unions that would lead to an increase in the Italian hourly wage. However, you are also concerned about keeping the trade ows between Italy and the US intact. The labor unions demand to increase the Italian hourly wage (in euros) to 85% of the US hourly wage (in dollars). How would such an increase affect trade between the two countries? As a politician concerned in balancing different interests, from which level would you not be able to accommodate an increase in the hourly wage? Assume that changes in hourly wages do not affect the exchange rate