This question is about changes in technology and the effect it has on the terms of trade

1. This question is about changes in technology and the effect it has on the terms of trade. This economy consists of three countries; United States, Mexico, and Canada. Each country can produce two goods, an agricultural good and a manufacturing good. Production functions are usa=l Lusa 329, = 129, 36 constant returns to scale in labor. Unit labor requirements are given by, The labor forces in each country, a a. [9 pts] Draw the P PF for each country in autarky. Clearly label the x and y intercepts and the slope. b. [6 pts] What is the relative price of manufacturing to agriculture in each country in au- tarky? c. [10 pts] Suppose the countries open up to trade, draw the relative supply curve. d. [15 pts] Let the relative global demand curve be given by, What is the equilibrium relative price of manufactured goods to agricultural goods? e. [10 pts] Suppose there is an improvement in manufacturing technology in Mexico, and the unit labor requirement falls from 2 to 1.1. Draw the new relative supply curve. How does this change affect the terms of trade? Who wins and who looses? Explain your answer.