Question
No-trade equilibrium in Egypt Recall, when no trade occurs: Y T * = C T * and Y S * = C S * C
No-trade equilibrium in Egypt
Recall, when no trade occurs: YT*=CT* and YS*=CS*
CT*: consumption of textile (in yards);
CS*: consumption of steel (in pounds).
Draw the production possibility frontier (PPF) of Egypt on a separate diagram with the quantity of cloth (QT*) on the horizontal axis and the quantity of steel (QS*) on the vertical axis. Be sure to show the exact intercepts on the axes; also calculate the slope of the PPF for each country and explain what it means.
What is the equilibrium price ratio PT*/PS* in Egypt?
PT*: price per unit of textile (in $);
PS*: price per unit of steel (in $);
W*: nominal wages in Egypt (in $).
Draw a community indifference curve on the same chart. Assume that the closed economy equilibrium is reached at point A*:
YT*=CT*=30 yards
YS*=CS*=10 lbs
Compute real wages in Egypt, expressed in terms of steel (W*/PS*) and in terms of textile (W*/PT*). Do not forget to add the unit of measurement.
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