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Consider a world with two countries i = {US, MEX}, each inhabited by L consumers. Suppose that each country has the technology to produce
Consider a world with two countries i = {US, MEX}, each inhabited by L consumers. Suppose that each country has the technology to produce a continuum 9 [0,1] of goods. Let ar (g) be the unit labor requirement of producing good g = [0,1] in country i = {US, MEX}. Normalize the wage in Mexico to be one, and let w denote the wage in the US. (a) Suppose that aus (9) = g and aMEX (9) = g. If the equilibrium wage is w = 2, which country would produce which good? (b) Let U be the utility function for consumers and let Ci(g) be the amount of consumption for good g in country i. State the (i) exogenous parameters of the model; (ii) endogenous outcomes of the model; and (iii) state the equilibrium conditions.
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