International Trade

Question 2 (45 points) The world economy consists of two countries, East and West, which produce apparel and computers. It takes 1 skilled worker and 2 unskilled workers to produce one unit of apparel, and it takes 3 skilled workers and 3 unskilled workers to produce one computer. West has 60 million skilled workers and 72 million unskilled workers, while East has 300 million skilled workers and 540 million unskilled workers. All workers, employers, and consumers take price as given, and workers are freely mobile across industries (but not mobile across countries). In both countries, the relative demand for apparel is given by RD 2 49 lOOPA/PC, where RD is the quantity of apparel consumed divided by the number of computers consumed, PA is the price of apparel, and PC is the price of computers. 1. (10 points) Derive and draw the relative supply of apparel curve in both countries. 2. (5 points) Derive and draw the world relative supply of apparel curve under free trade. 3. (10 points) What is the relative price of apparel in each country under autarky, and the relative price under free trade? 4. (15 points) Who wins and who loses from trade in the East? Show your calculations and/ or show your logic graphically. 5. (5 points) Who wins and who loses from trade in the West? You don't need to redo all the calculations for the West, just explain why