Suppose all the assumptions of the Ricardian Model hold in a hypothetical world with two countries:...

Transcribed Image Text:

Suppose all the assumptions of the Ricardian Model hold in a hypothetical world with two countries: Home and Foreign. Home has 1,200 workers. One worker can produce 1/3 units of apples or ½ units of bananas. Foreign has 800 workers. One worker can produce 1/5 units of apples or 1 unit of bananas. Draw the relative world relative supply curve for apples in terms of bananas. Suppose Home and Foreign successfully establish a free trade agreement that removes all the trade barriers. In this integrated world market, the demand of apples relative to bananas is given by Pa 1 = Pb (la) Pa Pb where Qa/Qb is the quantity of apples relative to the quantity of bananas and is the price of apples in terms of bananas. Qa 2) (2 points) Find and in the free trade equilibrium. Pb Qb 3) (2 points) Find the production of apples and bananas in Home and in Foreign in the free trade equilibrium. 4) (4 points) Find the real wage in Home in autarky (no trade) equilibrium and in free trade equilibrium. Suppose all the assumptions of the Ricardian Model hold in a hypothetical world with two countries: Home and Foreign. Home has 1,200 workers. One worker can produce 1/3 units of apples or ½ units of bananas. Foreign has 800 workers. One worker can produce 1/5 units of apples or 1 unit of bananas. Draw the relative world relative supply curve for apples in terms of bananas. Suppose Home and Foreign successfully establish a free trade agreement that removes all the trade barriers. In this integrated world market, the demand of apples relative to bananas is given by Pa 1 = Pb (la) Pa Pb where Qa/Qb is the quantity of apples relative to the quantity of bananas and is the price of apples in terms of bananas. Qa 2) (2 points) Find and in the free trade equilibrium. Pb Qb 3) (2 points) Find the production of apples and bananas in Home and in Foreign in the free trade equilibrium. 4) (4 points) Find the real wage in Home in autarky (no trade) equilibrium and in free trade equilibrium.

Answer rating: 100% (QA)

To draw the relative world relative supply curve for apples in terms of bananas we need to compare the relative supply of apples to bananas in Home and Foreign In Home each worker can produce 13 units ... View the full answer