Exercise 19.26. Consider a variation of the product cycle model in Section 19.5. Suppose there is no international trade, so that, the number of goods produced and consumed in each country will differ. (1) Show that wages and incomes in the North and the South at time t are wn (t) = N (t) 1 ε−1 and ws (t) = No (t) 1 ε−1 . (2) Derive a condition for relative income differences to be smaller in this case than in the model with international trade. Provide a precise intuition for why international trade may increase relative income differences (3) If trade increases the income differences between the North and the South, does it mean that it reduces welfare in the South? [Hint: if you wish, you can again use the steady-state welfare levels].