Given: The two countries in the world are the Canada (Home) and Spain (Foreign) Each country produces Computers (C) and Bolts (B). The unit labor requirements are als = 2, arc = 2, a*lb = 2, a* lc = 4. The labor supplies are I = 1000 and I * = 200. Define all the relative" variables with C in the numerator and B in the denominator. Label all relevant features of your diagrams Foreign country OC Home country OC of C in terms of B 1 0.5 . OC of B in terms of C 1 2 PPF foreign country 60 50 40 30 20 -Foreign country 10 O 0 50 100 150 Bolts PPF home country 600 500 400 300 200 home country 100 0 o 100 200 400 500 600 300 Bolts Equilibrium Price for Home is (alla)= 1 Equilibrium Price for Spain is 2 (a*.c/a*LB) = 2 In autarky: ( ) = 1 and A* (S) * = Q Part 1) What is the equilibrium world relative price? How much does each country produce of each good? What is the relative quantity consumed in each country? Part 2) Which one of the following consumption bundles (Dc, DB),(D*c ,D*B) is the equilibrium consumption bundle? i. (500, 500),(50, 50)) ii. (500, 500),(25, 25)) iii. (250, 250),(50, 50)) iv. (250, 250),(25, 25)) Part 3) Creating a PPF and label the consumption points of PT and CT Part 4) Complete the following table by filling in the relevant quantities. Home Foreign Exports of C Imports of Exports of B Imports of B Foreign Part 5) Complete the table by filling in the relevant numbers. Home Autarky real wage in terms of C Autarky real wage in terms of B Free trade real wage in terms of C Free trade real wage in terms of B Part 6) Lastly, suppose the Spanish marginal product of labor in the B sector increases. Show how this affects the world RS-RD diagram (y axis as Pc/PB and x axis Qc/ QB ) and the effects on gains from trade for each country Given: The two countries in the world are the Canada (Home) and Spain (Foreign) Each country produces Computers (C) and Bolts (B). The unit labor requirements are als = 2, arc = 2, a*lb = 2, a* lc = 4. The labor supplies are I = 1000 and I * = 200. Define all the relative" variables with C in the numerator and B in the denominator. Label all relevant features of your diagrams Foreign country OC Home country OC of C in terms of B 1 0.5 . OC of B in terms of C 1 2 PPF foreign country 60 50 40 30 20 -Foreign country 10 O 0 50 100 150 Bolts PPF home country 600 500 400 300 200 home country 100 0 o 100 200 400 500 600 300 Bolts Equilibrium Price for Home is (alla)= 1 Equilibrium Price for Spain is 2 (a*.c/a*LB) = 2 In autarky: ( ) = 1 and A* (S) * = Q Part 1) What is the equilibrium world relative price? How much does each country produce of each good? What is the relative quantity consumed in each country? Part 2) Which one of the following consumption bundles (Dc, DB),(D*c ,D*B) is the equilibrium consumption bundle? i. (500, 500),(50, 50)) ii. (500, 500),(25, 25)) iii. (250, 250),(50, 50)) iv. (250, 250),(25, 25)) Part 3) Creating a PPF and label the consumption points of PT and CT Part 4) Complete the following table by filling in the relevant quantities. Home Foreign Exports of C Imports of Exports of B Imports of B Foreign Part 5) Complete the table by filling in the relevant numbers. Home Autarky real wage in terms of C Autarky real wage in terms of B Free trade real wage in terms of C Free trade real wage in terms of B Part 6) Lastly, suppose the Spanish marginal product of labor in the B sector increases. Show how this affects the world RS-RD diagram (y axis as Pc/PB and x axis Qc/ QB ) and the effects on gains from trade for each country
