Suppose each worker in Home can produce 12 wheat or 4 TVs. Assume that Home has 10 workers. Suppose each worker in Foreign can produce 8 wheat or 2 TVs. Assume that Foreign has 20 workers. a. What is the no-trade relative price of TVs in Home and Foreign respectively? b. Which country has an absolute advantage in the production of wheat? Which country has a comparative advantage in the production of wheat? c. Use two graphs (one for Home and one for Foreign) to display production possibilities along with indifference curves and label no-trade equilibria and a trade equilibrium constructed by you. (Assume that positive quantities of both goods are consumed in both countries in all equilibria). Pick your own numbers for the relative price in the trade equilibrium and for quantities consumed in the trade and no-trade equilibria for both countries. d. What is the real wage in units of wheat in Home in the no-trade and in your proposed trade equilibrium? e. Calculate the gains from trade for Home by calculating the difference in the value of total consumption in your no-trade and trade equilibrium. Do this in units of wheat, holding the relative price fixed at its no-trade equilibrium value.
Suppose each worker in Home can produce 12 wheat or 4 TVs. Assume that Home has 10 workers. Suppose each worker in Foreign can produce 8 wheat or 2 TVs. Assume that Foreign has 20 workers.
a. What is the no-trade relative
b. Which country has an
country has a
c. Use two graphs (one for Home and one for Foreign) to display production
possibilities along with indifference
d. What is the real wage in units of wheat in Home in the no-trade and in your proposed trade equilibrium?
e. Calculate the
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