Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Consider a Ricardian model. There are two countries called Australia and New Zealand and two goods called beer and cheese. In Australia the unit labour

image text in transcribedimage text in transcribedimage text in transcribed
Consider a Ricardian model. There are two countries called Australia and New Zealand and two goods called beer and cheese. In Australia the unit labour requirement for a beer is 1 hour and for a cheese is 2 hours. In New Zealand the unit labour requirement for a beer is 4 hours and for a cheese is 1 hour. Australia has an endowment of 100 hours of labour. New Zealand has an endowment of 100 hours of labour.4 Denote the world prices in dollars as A, and P- respectively. Denote the respective quantities of beer and cheese consumed in New Zealand (following trade, of course) as D, and De . Using this notation, write out the budget constraint for New Zealand. Rearrange this budget constraint so that it is clear that the ratio of these world prices is reflected by the slope of the budget constraint. [ D. should be on the left-hand side and the rest of the stuff should be on the right-hand side.] (15 marks)3 Suppose now that we have trade between the countries and the world price is I beer for 2 cheeses. For each country draw in the budget constraint. For each country label the production point on the diagram. (15 marks)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Commercial Fishing On The Outer Banks

Authors: R Wayne Gray, Nancy Beach Gray

1st Edition

1439667055, 9781439667057

More Books

Students also viewed these Economics questions