Question
Hi, I really hope that you can help me with this question. I am currently studying for my upcoming exam, but this question remains a
Hi, I really hope that you can help me with this question. I am currently studying for my upcoming exam, but this question remains a mystery to me. I tried multiple ways to calculate it, but my answer does not answer the question down below. Thank you in advance!
Given is the standard 2-good, 2-country Ricardian model of international trade. Home has a labour force of 200 hours and Foreign of 100 hours.
Home | Foreign | |
X (hours/unit) | 2 | 3 |
Y (hours/unit) | 1 | 0.5 |
But this changed due to the earthquake. A major earthquake in Foreign halves labour productivity in Foreign in both sectors. Home has a labour force of 100 hours and Foreign of 50 hours. I calculated that the values 2, 6 and 1/2 remain unchanged (in figure 1).
Question: discuss and explain the implications of the earthquake in Foreign for the distribution of the gains from trade between Home and Foreign.
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