Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Consider two countries, Home and Foreign, which are closed to international trade. Home has LH=1,170 units of labor available, and Foreign has LF=(0.8)*(1,170) units of

Consider two countries, Home and Foreign, which are closed to international trade. Home has LH=1,170 units of labor available, and Foreign has LF=(0.8)*(1,170) units of labor. Both countries can produce two goods, good 1 and good 2. Home's unit labor requirement in good 1 production is 9, while in good 2 production is 4. Foreign's unit labor requirement in good 1 production is 3, while in good 2 production it is 6. Assume that both countries trade with each other and that the world relative demand (RD) takes the following form: (Demand for good 1)/(Demand for good 2) = (11)/[(Price of good 1)/(Price of good 2)]. Assume that the two countries cannot trade. Compute the equilibrium price of good 1 in terms of good 2 at Home and Foreign, assuming that consumers in each country like to consume both goods. Explain how you determined this equilibrium price

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

Microeconomics

Authors: Austan Goolsbee, Steven Levitt, Chad Syverson

3rd Edition

1319105564, 978-1319105563

More Books

Students also viewed these Economics questions