Answered step by step
Verified Expert Solution
Question
1 Approved Answer
This problem is based on the Ricardian Model. Assume that 2 countries, Gryffindor and Slytherin, use troll labor to produce 2 goods, swords and
This problem is based on the Ricardian Model. Assume that 2 countries, Gryffindor and Slytherin, use troll labor to produce 2 goods, swords and brooms. (a) In Gryffindor, 1 troll can produce 2 swords or 4 brooms, while in Slytherin the production of 1 sword requires 5 trolls and the production of 1 broom requires 2 trolls. Assume that there are 100 trolls in each country. Draw a PPF for each country. (b) Which country has a comparative advantage in swords and why? (c) Suppose that in the trade equilibrium Ps/PB = 2.3. Which good will each country export? (d) For each country, calculate the real wage in terms of swords and in terms of brooms. (e) For each country, compare the values you obtained in part (d) with the real wage in terms of either good in the no-trade equilibrium. Do trolls in each country gain from trade? (f) How much will the trolls of each country consume under autarky and if there is trade?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started