Calculate the free trade price ratio of each good

Reference no: EM132196878

Question: Home has 360 units of labour, and requires 12 units of labour to produce one unit cloth and 6 units of labour to produce one unit of Wine. Foreign has 240 units of labour, and requires 2 unit of labour to produce one unit of Cloth and 4 units of labour to produce one unit of Wine.

a) Find the autarkic price ratios. Which country has a comparative advantage in producing cloth?

b) Graph the world relative supply curve (Cloth relative to Wine).

c) Sketch the world relative demand curve under the assumption that (in both countries) expenditure is equally divided between the two goods. Add to this curve to the relative supply graph and label the free trade price ratio.

d) Calculate the free trade price ratio and aggregate production of each good in the trading equilibrium.

e) How many units of wine does Home export? How many units of cloth does Foreign export?

f) Demonstrate the aggregate gains from trade for each country (include the production possibilities frontier, production point, and consumption point).

g) In the trading equilibrium, what is the relative wage across countries (Home relative to Foreign)? Which country has a higher wage?

Reference no: EM132196878

Questions Cloud

What happens to the growth of output : Suppose the process of Brexit reduces immigration into the UK and assume that this re- duces the population growth rate. Examine what will be the effect.

Create n bags n being the number of element in the array : For every element of the array , put this element in a bag so that arr[ i ] is inserted into bag number n*arr [i] + 1 .

Change management contribute to organizational effectiveness : How does change management contribute to organizational effectiveness? Please provide a well-researched technical analysis.

Encapsulates statistics for summer job salaries for a group : Write a class (and a client class to test it) that encapsulates statistics for summer job salaries for a group of people over several years.

Calculate the free trade price ratio of each good : Calculate the free trade price ratio and aggregate production of each good in the trading equilibrium. How many units of wine does Home export?

Large multispecialty medical practice employing : You are the practice manager of Docs R Us, Ltd., a large multispecialty medical practice employing more than 100 physicians.

What is the socially optimum level of pollution reduction : What is the socially optimum level of pollution reduction for each firm? Find a tax per-unit of pollution that implements this optimum.

Appropriate to the needs of the person the message is aimed : The term Gatekeeper Refers to one who previews incoming information to determine if it is appropriate to the needs of the person the message is aimed?

What type of social welfare function does the economy have : What type of social welfare function does the economy have? At what utility levels of L and P, does this economy achieves social optimum?

User Account

All Pages