HW09-solutions

# HW09-solutions - Suggested Solutions for HW #9 Winter 2006...

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Suggested Solutions for HW #9 Winter 2006 Econ 11 Professor Zame Question 1 (a) Endowment: ( C =0 ,L = 24) Production Function: C out = L in Variables to be determined: Prices: p C ,p L Consumer choices: C Production choices: C out in (b) 5Equat ions : L = 2 3 ( 24 p L p L ) C = 1 3 ( 24 p L p C ) C out = L in L in + L =24 C = C out Solving for the 5 variables: p C p L ,C out in L = 2 3 ( 24 p L p L ) =1 6 L in + L =2 4 L in 4 16 =8 C out = L in C = C out 1

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C = 1 3 ( 24 p L p C ) 8= 1 3 ( 24 p L p C ) p C p L =1 Question 2 Country A Consumption goods: F,H Variables to be determined: Prices: p F ,p H L Individual Consumer choices: F ,H Production choices: F out out ,L F A H A Zero-pro f t condition: π F = p F F p L L F =0 p F L F p L L F p L p F π H = p H H p L L H 4 p H L H p L L H p L p H =4 Individual Consumption choices: F = 1 2 ( p L p F ) = 1 2 H = 1 2 ( p L p H ) =2 Food market clears: MF = F out M 2 = F out 2
Home appliances market clears: MH = H out 2 M = H out From production functions: F out = L F L F = M 2 H out =4 L H 2 M L H L H = M 2 Labor Market clears: L F + L H = M M 2 + M 2 = M Question 3 Country B Consumption goods: F,H Variables to be determined: Prices: p F ,p H L Individual Consumer choices: F ,H Production choices: F out out ,L F H Zero-pro f t condition: π F = p F F p L L F =0 6 p F L F p L L F p L p F =6 π H = p H H p L L H 2 p H L H p L L H p L p H =2 3

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Individual Consumption choices: F = 1 2 ( p L p F ) =3 H = 1 2 ( p L p H ) =1 Food market clears: NF = F out 3 N = F out Home appliances market clears: NH = H out N = H out From production functions: F out =6 L F L F = 3 N 6 = N 2 H out =2 L H N L H L H = N 2 Labor Market clears: L F + L H = N N 2 + N 2 = N 4
Question 4 Case 1: 1 2 < M N < 6 Both countries specialize and trade. Country A will specialize in H, because it has the comparative advantage in H. Country B will specialize in F, because it has the comparative advantage in F.

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## This note was uploaded on 04/01/2010 for the course ECON Econ 11 taught by Professor Mcdevitt during the Fall '07 term at UCLA.

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HW09-solutions - Suggested Solutions for HW #9 Winter 2006...

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