Suppose the World includes two countries H and F, producing two goods 1 & 2, with the following information: (1). labor endowment: LH = 6, LF = 4 (1). labor requirement for producing 1 unit of good: off = 1, a = 2; af = 1, af = 1 H F 1 1 (3). utility for both countries: u(c, C) = c c Notice that the above variables are given (predetermined). They are information that are available to us to solve for the equilibrium. These variables are called exogenous variables. For our above-mentioned example, they include: technology (the labor productivities), prefer- ence (the utility function), and endowment (in the Ricardian case, it includes only labor). Step 1. Production: Question: Who export What? Step 2. Wage determination: Step 3. Optimal Consumption: Step 4. market clearing condition: Summary of the Equilibrium: Exercise: assume LH = Example 2 12, does the equilibrium of complete specialization exist? (Hint: check H whether the condition = < Example-4 Now go back to example 1, suppose now country H has a technology improvement in both goods 1 & 2, which makes af = 1/2 and a = 1, how will the trade pattern be changed? Who H 2 will export what to whom? by how much? Solve for the new equilibrium. Can you draw any conclusion on consumer's welfare compared with Example 1? Example - 5 Now go back to example 1, suppose now country H has a technology improvement in goods H 2, which makes a 1/2, how will the trade pattern be changed? Who will export what to whom? by how much? Solve for the new equilibrium. Can you draw any conclusion on consumer's welfare compared with Example 1? =