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C. Calculate the upper and lower limits on the free trade price to ensure that trade will occur? Explain this calculation. Explain which country will
C. Calculate the upper and lower limits on the free trade price to ensure that trade will occur? Explain this calculation. Explain which country will export which good? (3 marks) d. Suppose that the US has a labour endowment of 600 units and Mexico has a labour endowment of 2000 units. Show and explain the production possibility frontier for each country with and without trade at the limits that you identified in part c. Who gains from trade at each limit? (7 marks) e. Suppose that the terms of trade settle at = = 1.5. Show that both countries gain from trade. (8 marks) f. Explain how the terms of trade are determined in equilibrium. (6 marks)We are given the following labour per output ratios for the US and Mexico: Chemicals Radios US 1 Mexico 10 This should be read as; in order to produce 1 unit of the good, for example chemicals, we need 1 unit of labour in the US and 10 units of labour in Mexico
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