District 12 has 2 units of labor and District 8 has 1 unit of labor. The MPL of textiles in District 12 is 5 and in District 8 is 8 units of textiles per unit of labor. The corresponding MPLs of coal are 3 and 6. Further, assume that in no trade equilibrium each district consumes 1/2 of its output of coal.

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Chapter1: Making Economics Decisions
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District 12 has 2 units of labor and District 8 has 1 unit of labor. The MPL of textiles
in District 12 is 5 and in District 8 is 8 units of textiles per unit of labor. The corresponding
MPLs of coal are 3 and 6. Further, assume that in no trade equilibrium each district
consumes 1/2 of its output of coal.
Transcribed Image Text:District 12 has 2 units of labor and District 8 has 1 unit of labor. The MPL of textiles in District 12 is 5 and in District 8 is 8 units of textiles per unit of labor. The corresponding MPLs of coal are 3 and 6. Further, assume that in no trade equilibrium each district consumes 1/2 of its output of coal.
1. Calculate the opportunity cost of Coal in both districts.
2. Draw export supply and import demand for Coal. Make sure to label the axes, mark all
the relevant numbers on the vertical and horizontal axes, clearly state which country is
the exporter and which is the importer.
3. Real wage in each country can be expressed in terms of Coal or Textiles. What will
happen to real wage in District 8 in terms of Coal and Textiles when the two countries
trade with complete specialization?
Transcribed Image Text:1. Calculate the opportunity cost of Coal in both districts. 2. Draw export supply and import demand for Coal. Make sure to label the axes, mark all the relevant numbers on the vertical and horizontal axes, clearly state which country is the exporter and which is the importer. 3. Real wage in each country can be expressed in terms of Coal or Textiles. What will happen to real wage in District 8 in terms of Coal and Textiles when the two countries trade with complete specialization?
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