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assign3_0910

# assign3_0910 - University of Hong Kong 2nd semester...

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University of Hong Kong 2 nd semester 2009-2010 ECON0301 Theory of International Trade Assignment 3 Y. Stephen Chiu Due time: 5pm, 12 March 2010 (Friday) Answer all of the following questions, and hand in your scripts to your TA (Mr. DAI Ming) on or before the deadline via his pageon box on the 9 th floor of K.K. Leung Building. 1. (Ricardian model) Consider a many good Ricardian model as follows. There are 5 goods: 1, 2, 3, 4, and 5. Their unit labor requirements in home and foreign countries are as follows: Good Home Unit Labor Requirement (a i ) Foreign Unit Labor Requirement (a i *) Relative Home Productivity Advantage (a i */a i ) 1 1 10 10 2 5 40 8 3 3 12 4 4 6 12 2 5 12 9 0.75 Let L and L* be 100 and 150, respectively. Suppose each country always spends1/5 of its income on each good. (This comes from the utility maximization problem when the utility function is Cobb-Douglas, i.e., u= x 1 0.2 x 2 0.2 x 3 0.2 x 4 0.2 x 5 0.2 .) a. Write down the relative supply of home labor over foreign labor (as a function of w/w*, the ratio of home wage rate over foreign wage rate). Draw it in a graph.

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