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PLEASE ANSWER ALL PARTS, I AM UNSURE ABOUT WHAT I HAVE DONE HERE You will now solve a Ricardian model where I have made some
PLEASE ANSWER ALL PARTS, I AM UNSURE ABOUT WHAT I HAVE DONE HERE
You will now solve a Ricardian model where I have made some small changes to the setup relative to what we did in lecture. This will not significantly change how you solve the model. The changes will be that the countries a) have different utility functions from each other, and b) while the utility functions are still Cobb Douglas, they will not have the .5 exponents on each good. In particular, the U.S. will have a slight preference for Steel and Canada will have a slight preference for Lumber. To be precise, here are the utility functions and marginal utilities: I.4 U.S.: U(S,L)=S-L.4. This makes MUS =.6 S.4 and MU, =.4 1.6 8.4 Canada: U(S,L)-S-4L-6. This makes MUs = .4- S-6 -and MU, =.6 You'll find that there will be something a little strange about the free trade outcome. I won't spoil the surprise. (Aren't you excited? Silly me, of course you're excited.) Be prepared.In autarky, what is the US. consumptionfproduction of S and L? For Canada? i. .4*300mil labog 30 feet lumber)= 3600m tons of lumber ii. .6*300mil labor (5 tons steel) = 900111 tons of steel . What is the autarky utility level for the U.S.? For Canada? i. (900\".Q(3600".4)= 1567 utility for the US ii. (42".4=):(840*.6)= 253 .4 When trade begins, which country will specialize infexport Lumber? i. Canada has the specialization in producing the product and given that, tha' means that Canada will also export lumber like the E but the US's specialty is steel . Exactly what will Canada produce when trade begins? How much will it export to the U.S.?l Will the US. be satised by Canadian exports? If not, what does that mean for the production in the U.S.? What must the world price of Canada' s export be? Now that we know what the price is of Canada's export, how much of the import does it consume? What is Canada's post trade utility? . What is the nal trade outcome for the U.S.? Has the U.S. benefited from trade? Why or why not? Has the US. suffered from trade? [There is a notion in International Economics about \"small\" countries. In this example Canada is \"small\" relative to the U.S. We see in this question that in this model the small country experiences signicant gains from trade, but the large does not]Step by Step Solution
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