Question 1. This question helps you review the Ricardian model. 22 points, 2 each. <\/p>\n
MPL MPL Labor units<\/p>\n
Cloth Widgets<\/p>\n
Home 1\/100 1\/200 600<\/p>\n
Foreign 1\/60 1\/30 120 <\/p>\n
Answer the following questions and show your steps. For the T\/F questions, please explain why they are T\/F. <\/p>\n
(1). T\/F? The Foreign country has the absolute advantage for both cloth and widgets. <\/p>\n
(2). Draw the PPF for the Home country. Please label the max cloth output and max widget output. <\/p>\n
(3). T\/F? The Home country has the comparative advantage for widgets. <\/p>\n
(4) T\/F? In the Foreign country, under closed-economy equilibrium, 1 cloth fetches the same price as 2 widgets. <\/p>\n
(5) Calculate the real wage for widgets in the Home country under closed economy equilibrium. <\/p>\n
(6). If these two countries trade, then what is the lower limit of the relative price of cloth in the free-trade equilibrium (i.e. PclothT\/PwidgetT)? <\/p>\n
For the questions below, assume that PclothT\/PwidgetT = 1. <\/p>\n
(7). In your PPF picture in (2) above, illustrate that the Home country gains from trade. You may also draw a new picture below if you wish. Please label the slope of the CPF. <\/p>\n
(8). Calculate the real wage for widgets in the Home country under the free-trade equilibrium. <\/p>\n
(9) Calculate the wage of the Home country relative to the wage of the Foreign country under free trade. <\/p>\n
(10) According to your answer to (9), which country has a higher wage under free trade? What is the intuition for this?<\/p>\n
(11) T\/F? Because the Home country gains from trade, the real wage for cloth under free trade is higher than under closed economy.<\/p>\n
Question 2. This question helps you get a deeper understanding of the wage equation. (6 points, 3 points each). <\/p>\n
(1) According to our wage equation, w = P x MPL. We also know that in competitive markets, price equals marginal cost. What is the expression for marginal cost, according to the wage equation? <\/p>\n
(2) Explain, in plain English, why the expression you derive above is marginal cost. <\/p>\n","protected":false},"excerpt":{"rendered":"
Question 1. This question helps you review the Ricardian model. 22 points, 2 each. MPL MPL Labor units Cloth Widgets Home 1\/100 1\/200 600 Foreign 1\/60 1\/30 120 Answer the following questions and show your Read More …<\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-174089","post","type-post","status-publish","format-standard","hentry"],"_links":{"self":[{"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/posts\/174089","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/comments?post=174089"}],"version-history":[{"count":0,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/posts\/174089\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/media?parent=174089"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/categories?post=174089"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/tags?post=174089"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}