Question
In: Economics
Ricardian Model with Technological Progress: Consider the Ricardian model of trade. Two countries, Paraguay and Uruguay,...
Ricardian Model with Technological Progress: Consider the Ricardian model of trade. Two countries, Paraguay and Uruguay, produce two goods, Beef (B) and Soybeans (S), using only labor. Paraguay can produce one tonne of Beef with 3 units of labor and one tonne of Soybeans with 3 units of labor. Uruguay can produce one tonne of Beef with 2 units of labor and one tonne of Soybeans with 3 units of labor. Both countries are endowed with a labor force of 90 units (each). Preferences are the same in the two countries and are described by the following Cobb-Douglas utility function: U(B,S) = B^(1/3)S^(2/3)
(i) Which country has an absolute advantage in Beef? Which country has an absolute advantage in Soybeans? Which country has a comparative advantage in Beef? Which country has a comparative advantage in Soybeans?
(ii) Derive and draw the relative supply of Beef. Derive and draw (in the same graph as above) the relative demand for Beef. Find the equilibrium relative price of Beef. Do both countries completely specialize? How much do they produce, consume, export and import?
(iii) What is the real wage measured in terms of Beef and in terms of Soybeans in Paraguay and in Uruguay? Compare those numbers with what you have found for autarky and comment on whether this comparison tells you something about gains from trade. Which country has higher real wages in the trade equilibrium? Can you relate your answer to productivity differences?
Solutions
Rahul Sunny answered 1 year agoRelated Solutions
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Ricardian Model of Trade – Consider the followin
Ricardian Model of Trade –
Consider the following 2 X 2 Ricardian model of trade:
Output per labour-hour
Nation
Wheat
(metric tonnes)
Cloth
(metres)
Canada
6
4
U.K.
1
3
Who has the absolute advantage in wheat? Explain. (
2 marks)
Canada, because it can produce more wheat
Who has the absolute advantage in cloth?
Explain. ( 2 marks)
Canada. It can produce more
cloth.
Who has the comparative advantage in wheat? Explain (
2.5 marks)
Canada -...
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Consider a Ricardian model. There are two countries called
Australia and New Zealand and two goods called beer and cheese. In
Australia the unit labour requirement for a beer is 6 hours and for
a cheese is 12 hours. In New Zealand the unit labour requirement
for a beer is 4 hours and for a cheese is 1 hour. Australia has an
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400 hours of labour.
Draw a...
Consider a Ricardian model. There are two countries called Australia and New Zealand and two goods...
Consider a Ricardian model. There are two countries called
Australia and New Zealand and two goods called beer and cheese. In
Australia the unit labour requirement for a beer is 10 hours and
for a cheese is 10 hours. In New Zealand the unit labour
requirement for a beer is 4 hour and for a cheese is 1 hour.
Australia has an endowment of 2000 hours of labour. New Zealand has
an endowment of 400 hours of labour.
1 Draw...
Consider a Ricardian model. There are two countries called Australia and New Zealand and two goods...
Consider a Ricardian model. There are two countries called
Australia and New Zealand and two goods called beer and cheese. In
Australia the unit labour requirement for a beer is 6 hours and for
a cheese is 12 hours. In New Zealand the unit labour requirement
for a beer is 4 hours and for a cheese is 1 hour. Australia has an
endowment of 3600 hours of labour. New Zealand has an endowment of
400 hours of labour.
Draw a...
Consider a Ricardian model. There are two countries called Australia and New Zealand and two goods...
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Australia and New Zealand and two goods called beer and cheese. In
Australia the unit labour requirement for a beer is 6 hours and for
a cheese is 12 hours. In New Zealand the unit labour requirement
for a beer is 4 hours and for a cheese is 1 hour. Australia has an
endowment of 3600 hours of labour. New Zealand has an endowment of
400 hours of labour.
Draw a...
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China has comparative
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should specialize
according to their comparative advantage. Why China may not follow
such a rule, while
for Singapore it is not a concern?
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