tradeexample6 - Calculate the level of output in each...

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Example 6 Suppose we have a model in which two countries, Home and Foreign produce the same good, which we call “output”. The quantity of output produced by Home is denoted X while the quantity produced by foreign is denoted . * X Let output be the numeraire in the model; its price is equal to 1. Both countries are endowed with the same quantity of land; . 400 * = = T T Home has more labor than Foreign has; . 100 400 * = > = L L Both countries have access to the same technology: L T X = * * * L T X = a) Suppose that international trade in output is possible but labor migration is not possible.
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Unformatted text preview: Calculate the level of output in each country. b) Derive an expression for the marginal product of labor in each country. What is the wage in Home and Foreign in the absence of labor migration? c) Suppose now that restrictions on labor migration are lifted. Use your answer to (b) to work out the allocation of labor between Home and Foreign after migration has taken place. What is the wage in the two countries now? d) Use your answer to c) to comment on why politicians in Europe promote policies that restrict entry of labor from China....
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