Suppose two countries canada and mexico produce two

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Unformatted text preview: e to explain your answer. 2. Suppose two countries, Canada and Mexico, produce two goods: timber and televisions. Assume that land is specific to timber, capital is specific to televisions, and labor is free to move between the two industries. When Canada and Mexico engage in free trade, the relative price of televisions falls in Canada and the relative price of timber falls in Mexico. a. (10 points) Using a ‘Bucket’ diagram like the ones used in class, show how labor in Canada is initially allocated between the timber and television industries. Then, show how the wage changes in Canada due to a fall in the price of televisions, hol...
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This document was uploaded on 01/18/2014.

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