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Consider the following Ricardian Model with 2 economies: Germany Portugal Labor Supply 200 workers 200 workers...

Consider the following Ricardian Model with 2 economies:

Germany

Portugal

Labor Supply

200 workers

200 workers

Wine

1000 units/worker

800 units/worker

Beer

400 units/worker

300 units/worker

(d) Show graphically that Germany gains from trade. Carefully label your graph.

(e) Which country has higher wages? What determines the real wage at the national level? Explain.

(f) Calculate real wages in France in autarky and free trade? How do real wages change in France after opening to free trade? (Hint: Assume a international relative price of wine that makes sense in this model)

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Expert Solution

Rahul Sunny answered 5 months ago
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