Trade with differentiated goods: Consider the Krugman textbook model (see lecture slides 154-157) but replace the...

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Trade with differentiated goods: Consider the Krugman textbook model (see lecture slides 154-157) but replace the linear demand function with the following isoelastic one (which is widely used in micro- and macroeconomics): S y=- () 0 > 1 where i = 1,2 is the country index. The symbols have the same meaning than in the slides. Show that in this case, after allowing for free trade we have on the world market n = n +n product variants (and not n < n +n like in the textbook model we discussed in the lecture). Hint: you proceed as we did in the lecture.... Trade with differentiated goods: Consider the Krugman textbook model (see lecture slides 154-157) but replace the linear demand function with the following isoelastic one (which is widely used in micro- and macroeconomics): S y=- () 0 > 1 where i = 1,2 is the country index. The symbols have the same meaning than in the slides. Show that in this case, after allowing for free trade we have on the world market n = n +n product variants (and not n < n +n like in the textbook model we discussed in the lecture). Hint: you proceed as we did in the lecture....