Question: Suppose there are two countries, Home and Foreign, and two goods, cake and tea, produced using only labour. Firms in Home have unit labour cost

Suppose there are two countries, Home and Foreign, and two goods, cake and tea, produced using only labour. Firms in Home have unit labour cost 1 for cake, and 2 for tea; Foreign firms have unit labour cost 2 for cake and 3 for tea. Both countries have the same labour force L and share the same preferences; demand for good g = c, t in country j = H, F is x^j_g = Y^j/(2p_g), where Y^j is country j's income. Prices for goods are p_c and p_t, but normalise p_c = 1

If there is free trade of goods and show that the world market price for tea is p*t = 2 and derive the production, imports and exports, and wages in each country.

Home considers introducing a quota on imported tea of L/12. Determine the new supplies of tea and cake in Home and Foreign and show that in equilibrium consumer prices are p^H_t = 2 and p^F_t = 7/4.

With the new equilibrium, will the quota boost Home's tea output? How will wages and consumption change in Home and in Foreign? Will output in Home increase? Explain the effect of the quota on the world market

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock blur-text-image

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Students Have Also Explored These Related Economics Questions!

Suppose there are two countries, Home and Foreign, and two goods, crumpets and tea, produced using only labour. Firms in Home have unit labour cost 1 for crumpets, and 2 for tea; Foreign firms have...

thanks a lot. Suppose there are two countries, Home and Foreign, and two goods, crumpets and tea, produced using only labour. Firms in Home have unit labour cost 1 for crumpets, and 2 for tea;...

Thanks a lot. Suppose there are two countries, Home and Foreign, and two goods, crumpets and tea, produced using only labour. Firms in Home have unit labour cost 1 for crumpets, and 2 for tea;...

Consider a Ricardian world with two countries (Home and Foreign) and 5 goods (A; B; : : : ; E): The unit labour requirements for each good are listed in the follow- ing table: aLi a Li A 1 10 B 8 40...

Q5(b) (13 points) Consider the same model from 4a, copied here: [There are two countries, Home and Foreign, and two goods, wheat and cars (put cars on the horizontal axis). There is a single factor...

please solve part (c) Answer for part (a) and (b) 3. [60 marks, equal weights for all subquestions Consider the Specific Factors model with two countries, Home and Foreign, with two goods, cars (c)...

Thank you in advance! Will thumbs up answers Problem 1. I strongly suggest you read the worked examples in the lecture notes from Chapter 3 before attempting this problem. In the spaces below write...

1. Consider first the specific-factors model with two countries (Home and Foreign) and two goods (cell phones and textiles). There are three factors of production in each country: Labour (denoted by...

Consider the Heckscher-Ohlin model with two countries, Home and Foreign, and two goods, carpets and tableware. There are two factors, capital and labour, each of which can be used in the production...

International trade can create a larger market. We can illustrate the effects of trade on prices, scale, and the variety of goods available with a specific numerical example. Imagine that automobiles...

Taveras Corporation is currently operating at 50% of its available manufacturing capacity. It uses a job-order costing system with a plantwide predetermined overhead rate based on machine-hours. At...

An example of an employee introductory letter to a network provider for the purpose of sim card registration

July 1. The following assets were received from Steffy Lopez in exchange for common stock: cash, $13,500; LATE accounts receivable, $20,800; supplies, $3,200; and office equipment, $7,500. There were...

A bank makes a package of three loans to a small business. (a) $120,000 amortized monthly for ten years at a nominal discount rate of 6.8% convertible monthly. (b) $100,000 to be repaid by monthly...

On January 1, Year 1, a company issues $520,000 of 5% bonds, due in 15 years, with interest payable semiannually on June 30 and December 31 each year. Assuming the market interest rate on the issue...

Problem #4 - You are the human resources representative for a new winery, Vino421, located in Northern Michigan. As part of its operation, Vino421 offers wine tastings in its tasting room and wine...

Pike Corporation paid $100,000 for a 10% interest in Salmon Corp. on January 1, 2013, when Salmon's stockholders' equity consisted of $800,000 of $10 par value common stock and $200,000 retained...

Rachel owns Brighten-Up, a lighting store in north Austin. Brighten-Up carries lights, ceiling fans, and lamps. Rachel hires Margo, a top designer, to redecorate Brighten-Up. Rachel calls her friend...

2. To understand that as a general rule it takes about 3 minutes before the other part(s) have made up a 90% impression of you.

3. To understand that the first impression means a lot, and it takes a lot of energy to change this first impression.

Go, do not wait until I come