Reference no: EM132953270

Shoes come in pairs: A left (foot) shoe has to find a right (foot) shoe. A representative worker in the North can produce EITHER 30 right shoes OR 10 left shoes (or any convex combination of these figures). There are 10 workers living in the North. A representative worker in the South can produce either 1 right shoe or 3 left shoes (or any convex combination of these figures). There are 100 workers in the South.

(i) How many pairs of shows the North will produce in the case of no trade (autarky)? And how many pairs of shoes the South will produce under no trade?

(ii) Suppose that these two areas open up to trade and one right shoe can be exchanged for one left shoe. How may pairs of shoes will the North consume? And the South?

(iii) Suppose now that population in the South increases to 1000 workers. What would be the new exchange rate for right/left shoes and how many pair of shoes the North will be consuming?