Question
In: Economics
Assume that a country produces two goods, agriculture (which requires land and labor) and manufactured goods...
Assume that a country produces two goods, agriculture (which requires land and labor) and manufactured goods (which requires labor and capital), and is currently in autarky equilibrium. The country just finds that the international price ratio of agriculture relative to manufactured goods, i.e., PA/PM, in the world market is LOWER than the price ratio in its domestic market.
- Use production-possibilities frontier (PPF) and indifference curves to show how this country may gain from trade and identify the trade triangle, including export and import quantities.
- How will the nominal wage rate (w) be affected when there are not only a lower PA but also a higher PM? Illustrate your answer graphically.
- For workers that spend a greater share of their income on agriculture goods, are they more likely to gain or lose from trade?
- How will the real rental rates of capital and land be affected, respectively? Briefly explain why.
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Rahul Sunny answered 1 year agoRelated Solutions
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