Ricardian Model. Consider two countries: A and B. Labour is the only factor of production for goods X and Y. Consider the following matrix of unit labour requirements. XYLabor EndowmentsCountry AaLx = 8aLy = 4240Country BaLx* = 6aLy* = 2120 Which country has an absolute advantage in producing good X? Good Y? Which country has comparative advantage in producing good X?What is the autarky relative price of good X for country A? For country B?Draw the world relative supply curve RS for good X. Label all the axes (relative price of good X on the vertical axis and world output of x relative to y on the horizontal axis) and the relevant points.Suppose that the world relative demand RD for good X is given by: (Px/Py) = 7 – 9 * ( ( Qx +Q*x) / (Qy + Q*y) ). With free trade: (i) What will be the equilibrium world relative price of good X be equal to? (ii) Calculate the equilibrium wage rate w in A relative to that in B under free trade: w/w*.

Absolute advantage refers to the situation where a country specializes in the production of a…

Answered: Ricardian Model. Consider two…

ENGR.ECONOMIC ANALYSIS

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ISBN:9780190931919

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Chapter1: Making Economics Decisions

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Ricardian Model. Consider two countries: A and B. Labour is the only factor of production for goods X and Y.

Consider the following matrix of unit labour requirements.

	X	Y	Labor Endowments
Country A	a_Lx = 8	a_Ly= 4	240
Country B	a_Lx^* = 6	a_Ly^*= 2	120

Which country has an absolute advantage in producing good X? Good Y? Which country has comparative advantage in producing good X?
What is the autarky relative price of good X for country A? For country B?
Draw the world relative supply curve RS for good X. Label all the axes (relative price of good X on the vertical axis and world output of x relative to y on the horizontal axis) and the relevant points.
Suppose that the world relative demand RD for good X is given by:

(P_x/P_y) = 7 – 9 * ( ( Q_x +Q*_x) / (Q_y + Q*_y) ).

With free trade: (i) What will be the equilibrium world relative price of good X be equal to? (ii) Calculate the equilibrium wage rate w in A relative to that in B under free trade: w/w*.

Definition Video Definition Ability of a country to produce more output with a given level of input or to produce the same level of output with a lower level of input as compared to the other countries. For example, if Country A produces 200 units with the help of 10 units of labor, and Country B produces 300 units with 10 units of labor, Country A has an absolute advantage in the production of the good. Video

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