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3. Trade and wages. 10 points Consider the production of goods X and Y in China and Japan with technological coeicients (i.e., number of hours
3. Trade and wages. 10 points Consider the production of goods X and Y in China and Japan with technological coeicients (i.e., number of hours of work for one unit of output) as given below: Table 2: Country / Good X Y China 3 5 Japan 15 9 (a) Compute the pretrade relative price of X and Y in both countries. Is there a basis for mutually benecial trade? Why or why not? (b) Let WC be the hourly wage rate in the China and WJ the hourly wage rate in Japan. Further- more, assume that the exchange rate E translates one unit of Japanese yens into Chinese yuans. Compute the interval that the relative real wage rate %m can take such that trade can take place along the lines of comparative advantage. (c) Suppose that nominal wages in China are 10 times larger than nominal wages in Japan, so that: WC = 10 X WJ. In which interval of values should the exchange rate E be for trade between the two countries to occur according to comparative advantage
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