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1. Consider a Ricardian model. Suppose the US's unitlabor requirement for timber is 3, its unit-labor requirement for video cassette recorders {VCRS) is 8 and
1. Consider a Ricardian model. Suppose the US's unitlabor requirement for timber is 3, its unit-labor requirement for video cassette recorders {VCRS) is 8 and it has 48 million workers. Suppose Taiwan's unitlabor requirement for timber is 6, its unitlabor requirement for VCRS is 2 and it has 48 million workers. a. Which country has the absolute advantage in each good? Which country has the comparative advantage? Explain. b. Calculate each country's autarky price ratio. Suppose that free trade price ratio (Pmher/Pvcns.:2, What are the levels of production and the pattern of trade when free trade occurs? c. Calculate real wages for workers in both countries in antarky and free trade. Explain why everyone benefits from trade. (Hint real wage = Wage/Price) d. Suppose the US implements a costless technology improvement program which lowers the US unitlabor requirement for timber to 2. What effect would this have on world supply of timber? What effect would this have on the free trade price ratio? Explain how real wages would change in both the US and Taiwan
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