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Suppose there are three countries (A,B,C) and two goods. The following is a table of unit labour requirements: Food Manufactures A 3 6 B 2
Suppose there are three countries (A,B,C) and two goods. The following is a table of unit labour requirements: Food Manufactures A 3 6 B 2 2 4 2 There are 600 units of labour in each country. (a) Draw the world relative supply curve for Food (i.e. Food/Manufactures) as a function of the relative price of Food (i.e. price of Food / price of Manufactures). (b) Assume both goods are consumed in each country. Which good will each country export? If we do not have enough information to determine this for one or more countries, explain why. (c) Draw a relative demand curve that is consistent with the free trade price being p:/Px = 1.25. (i) Which good does each country export? (ii) Suppose the relative demand for manufactures rises in country C (it stays the same in all other countries). What happens to the world relative price of Food (p:/px)? Are countries A and B better off or worse off? Why
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