- Question 1 30 Points Ricardian Model Suppose There Are Two Countries Country 1 And 2 Country 1 Is Inhabited By L1 1 (312.55 KiB) Viewed 35 times
thanks
Question 1 (30 points) (Ricardian Model) Suppose there are two countries: country 1 and 2. Country 1 is inhabited by L1 identical workers, and Country 2 is inhabited by L2 identical workers. Workers have one unit of time with which to produce and can choose to produce either product A or product B. In country 1, a worker can make 1/Q4 units of product A in a unit of time, or 1/a units of product B in a unit of time. In country 2, a worker can make 1/a4 units of product A in a unit of time, or 1/2 units of product B in a unit of time. Suppose that each worker in country i E {1, 2} has preferences U = Bln (C4) + yln (CB) where CA and CB are the quantities consumed of product A and B, respectively, and B > 0,7> 0. 1. (3 points) Fill in the following table. Table 1: Labor Requirement for Producing One Unit of Goods product A product B country 1 country 2 2. (3 points) What's the opportunity cost of product A in terms of product B in both countries? What would be the relative prices of the two products in both countries under Autarky? 3. (3 points) Define the production possibility set and the production possibility frontier for both countries. 4. (3 points) Suppose that all > age and a > Q. Is such information enough to determine the comparative advantage of each country? If it is enough, please show the comparative advantage for each country. If it is not enough, please show the necessary conditions. 5. (3 points) Suppose a1 = 2, Q = 4, am = 1, a} = 10, L1 = 200, L2 = 400, B = 8,7 = 2. In the world of free trade, please construct the world relative supply curve. Put the relative quantity of product A on the x-axis, and the relative price of product A on the y-axis. 6. (5 points)Given the preference, please derive the world relative demand function