Question 1 Suppose there are but two countries, namely A and B. Each country is indexed by "j" for j = A and T, = 0. Suppose the technology of both countries B. Both countries have no government, i.e. G; = are linear production in labor hours. That is, y, z,N, where N, is the number of working hours in country and 2, is the level of technology in country j. Suppose that ZA =2> ZB = 1 and preferences of consumers in both countries are identical a) Assuming a fixed time endowment in both countries to be equal to 1 unit, construct the PPF of each country. Putting both PPFs in the same figure and locate all important points. Comments on the differences and similarities between the two PPFs. b) Determine the competitive equilibrium in both countries. Are there any wage differentials in the equilibrium? Which one of the countries is supposed to experience a higher wage? Why? How about the allocation in both countries? e) Redo the problem "a" and "b" above, but instead assume that the labor endowment in both countries are different, i.e. h 1 and hp 4. Comment on the possible sources that generate the wage differentials, if any?

Question 1 Suppose there are but two countries, namely A and B. Each country is indexed by "j" for j = A and T, = 0. Suppose the technology of both countries B. Both countries have no government, i.e. G; = are linear production in labor hours. That is, y, z,N, where N, is the number of working hours in country and 2, is the level of technology in country j. Suppose that ZA =2> ZB = 1 and preferences of consumers in both countries are identical a) Assuming a fixed time endowment in both countries to be equal to 1 unit, construct the PPF of each country. Putting both PPFs in the same figure and locate all important points. Comments on the differences and similarities between the two PPFs. b) Determine the competitive equilibrium in both countries. Are there any wage differentials in the equilibrium? Which one of the countries is supposed to experience a higher wage? Why? How about the allocation in both countries? e) Redo the problem "a" and "b" above, but instead assume that the labor endowment in both countries are different, i.e. h 1 and hp 4. Comment on the possible sources that generate the wage differentials, if any?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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