Scribd Logo
Upload

Welcome to Scribd!

  • 1 views

    PS2_Ricardian_Model

    Uploaded by

    孟启扬

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd

    PS2_Ricardian_Model

    Uploaded by

    孟启扬
    1 views1 page

    Copyright

    © © All Rights Reserved

    Available Formats

    PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    1 views1 page

    PS2_Ricardian_Model

    Uploaded by

    孟启扬

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    You are on page 1of 1

    International Economics - ECOI 31253

    Problem Set 2 - The Ricardian model


    Exercise 1
    Consider the following unit labour requirements:
    Wine Cloth
    England 4 2
    Portugal 10 20

    a) Given that English productivity is higher in both sectors, why should England trade with
    Portugal? Which good will each country export under free trade? Why?

    b) Give a range for the free-trade price of wine relative to cloth, and justify it. Why can you
    not be more precise?

    Exercise 2
    Consider the following economic model:

    • There are two countries: i = E, P .

    • There are two tradable goods: v, c.

    • Labour is the only factor of production, and is nontradable.

    • Each country has 100 units of labour.

    • Technologies: q E (v) = lE (v)/4; q E (c) = lE (c)/2; q P (v) = lP (v)/10; q P (c) = lP (c)/20.

    • All markets are perfectly competitive.

    Choose good c as the numeraire, i.e. fix pi (c) = 1.

    a) Compute each country’s autarky equilibrium prices (under the assumption that consumers
    consume both goods).
    E P
    b) Assume that the world demand is given by p(v) x (v)+x (v)
    p(c) = 2 − 5 xE (c)+xP (c) . Compute the model’s
    free trade equilibrium prices, as well as the production, factor allocation and wages in both
    countries.

    What follows is OPTIONAL. Further assume that:

    • Preferences: U [xi (v), xi (c)] = min[xi (v), xi (c)] for both countries (i = E, P ).

    c) Define and compute each country’s autarky equilibrium.

    d) Define and compute the model’s free trade equilibrium.

    e) Compare welfare levels and wages under autarky and free trade. In the face of these results,
    do you think it makes sense to complain about rich countries’ high wages harming their own
    competitiveness?

    You might also like