There are three countries the U.S, Germany and China. Each economy produces two goods, tradables and nontradables. Each country has one hundred workers. You should assume that the price of tradables is one.

The number of workers in each country required to produce one unit of output of tradables and nontradables is given below:

Nontraded Traded

U.S 2.0 1.0

Germany 1.0 1.0

China 8.0 2.0

Answer the following questions:

1. What is the wage rate in the China?

2. What is the nontradable price level in the US?

Suppose that the productivity of labor increases in China. It now takes four workers to produce one unit of nontradables while the productivity of workers in tradables for China stays the same.

3. What is the wage rate in China now?

4. What is the price nontradables in China now?