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Q4. Consider a world with two countries i E {1,2}; each inhabited by Lg, consumers. Suppose that each country,r has the technology to produce a continuum g E [0, 1] of goods. Let 05:11:51) be the unit labor cost oi producing good 9 E [0, 1] in country i E {1, 2}. Normalize the wage in country 2 to one and let to denote the relative wage in country 1. 1. Suppose that (11(9) = 92 and {12(9) = g. If the equilibrium wage is w = 2, which country would produce which goods? (5 marks) 2. Suppose consumers have Cobb-Douglas preferences with equal demand shifters for all goods, i.e.: 1 U.- = [a logo.- (g) dg. Solve for the equiblirium quantity consumed of a good 9 by a consumer in t' as a function of the goods price 135(9) and the total income in country i, 11. (lI marks) 3. Suppose L1 = 1 and L2 = 2, unit labor costs are as in 4(1) and preferences are as in 4(2). Find the equilibrium relative wage, incomes in the two countries and pattern of specialization. [15 marks] 4. Suppose the population of country 1 doubled to L1 = 2. Show using both math and a gure how equilibrium wages would change. Would the equilibrium pattern of specialization change? [20 markS]