Question
QUESTION 6 Consider the Grossman-Rossi Hansberg model of offshoring. There are two goods: X and Y. Good X requires 4 units of unskilled labour to
QUESTION 6
Consider the Grossman-Rossi Hansberg model of offshoring. There
are two goods: X and Y.
Good X requires 4 units of unskilled labour to do Task 1 and 4
additional units of unskilled labour
to do Task 2. Further, 2 units skilled labour is also necessary
to organize production of Good X.
Good Y requires 2 units of unskilled labour to do Task 1 and 2
additional units of unskilled labour
to do Task 2. Besides, 4 units skilled labour is also necessary
to organize production of Good Y.
The prices of both goods are fixed on world markets at $24 per
unit. Initially, all tasks were
performed domestically, but now it becomes possible to perform
Task 1 in another country
(offshoring) for free.
Part A.
What is the wage skilled and unskilled workers receiving befor
e offshoring? Show
your work.
(4 marks)
Part B.
What is the wage skilled and unskilled workers receiving afte
r offshoring? Show
your work.
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