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In a particular country, there are two types of individuals: native (n) and foreigners (f). Each dedicate their 8 hours of labor to producing either
In a particular country, there are two types of individuals: native (n) and foreigners (f). Each dedicate their 8 hours of labor to producing either luxury (3:) and non-luxury goods (y). Native workers' utility function is given by Hfl = Ida-yes whereas foreigners' is given by U; = xozyaa Both individuals do not care whether they produce x or y. The production function for each good is given by x : 4-! and y = 5!, where I is the total labor devoted to the production of each good. a) What must be the price ratio, pr/py, be? Interpret your answer (7 points). 13) Given this price ratio, how much It and y will foreigners and native workers demand? Interpret your answer (T points}. c) How should labor be allocated between at and y to satisfy the demand calculated in part (b)? Interpret your answer {6 points)
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