In: Economics
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?