International Trade

Question 4 (30 points) Consider an economy that can produce two goods: apples and blue jeans. Each worker can produce 3 units of apples or 4 units of blue jeans. Suppose that when this economy is opened to trade, the price of apples is $10 per unit and the price of blue jeans is also $10 per unit. Suppose as well that each consumer spends one quarter of his / her income on blue jeans, and that there are 1 million workers in this economy. 1. (15 points) Construct the budget line for a typical worker in this economy under autarky and under free trade. Show all the steps necessary in the derivation of each line. 2. (15 points) What does this economy export under free trade, and how much does it export of it