10. Labor endowment in country A and B are 1000 and 2000 respectively. The labor productivity...

10. Labor endowment in country A and B are 1000 and 2000 respectively. The labor productivity for good x in country A is 5 units of labor per unit output and for good Y in country A is 10 units of labor per unit output. The labor productivity for good x in country B is 10 units of labor per unit output and for good Y in country B is 4 units of labor per unit output.

Draw and answer the following:

Price Ratios before trade

Pattern of trade

World Pre trade production

World Post trade production

Gains from trade and trade triangle

If international price ratio were closer to country A’s pre trade price ratio which country benefits the most from trade and why?

Does it matter where the consumer is consuming pre trade in this model? In other words, does it impact pre trade prices?

Solutions

Expert Solution

Rahul Sunny answered 1 year ago

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