Question
The US and Mexico Suppose the US and Mexico, produce two goods, aircrafts and corn. Assume that land is specific to corn, capital is specific
The US and Mexico
Suppose the US and Mexico, produce two goods, aircrafts and corn. Assume that land is specific to corn, capital is specific to aircrafts, and labor is free to move between the two industries. When the US and Mexico engage in free trade, the relative price of aircrafts (PA/PC) falls in Mexico and the relative price of corn (PC/PA) falls in the US. Please discuss the impact of trade on:
(a) Real wages in the US.
(b) Real income of US landowners and capitalists.
(c) Welfare effect for landowners and capitalists in Mexico.
(d) Is it possible to redistribute income so that everyone gains from trade in the US? And in Mexico?
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