Answer Happy

af = 2 1. A three-country Ricardian model (10 points) There are three countries in the world, H, F and E, and there are no trade costs among them. They can produce two goods: cars and textiles. The labor requirement for producing one unit of goods and total labor endowment of each country are listed below: Country Cars Textiles Labor H al = 1 100 F a = 10 af = 5 400 E 4 6 240 The world's relative demand function takes the following form, where D denotes quantity of demand and p denotes price: Dt Pc DC Pt = E = E = an al (a) Draw the world's relative supply and demand curve. (2 points) In your graph, make sure the variable on horizontal axis is world relative demand/supply of textile, and the variable on vertical axis is world relative price of textile. Carefully label the important points and coordinates. (b) How do countries specialize in goods production? (2 points) (c) Suppose F experiences a productivity boost, and consequently aſ is reduced to 2. Everything else stays unchang #2 (Alt +A) world's relative supply and demand curve in a new graph, and describe each country's specialization patterns. (4 points) (d) Compare your answers on country specializations in (b) and (c), and rationalize your findings. (2 points)