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Consider a world consisting of two countries: The United States and Mexico. Suppose that there are two industries, autos (A) and bikes (B) and that
Consider a world consisting of two countries: The United States and Mexico. Suppose that there are two industries, autos (A) and bikes (B) and that consumers have utility = 3/41/4 in both countries. In autarky, the United States produces 75 autos and 25 bikes while Mexico produces 15 autos and 10 bikes. We also assume that each country has a population L=100. a) What is the share of consumer expenditures in autos vs. bikes in each country? b) What is the relative price of bikes under autarky in each country? [partial credit if you guess which country has a lower relative price of bikes] c) From these assumptions, deduce the marginal product of labor in each industry
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