Unformatted text preview: This gives us the relative supply curve P
P
W
W
under autarky for Finland, shown in the following graph. ECON 6032 International Trade and Foreign Direct Investment Prof. Larry Qiu For Iceland, the procedure is analogous. Budget lines in both countries are drawn in the following graph. The intercepts are calculated as income divided by the corresponding price. In equilibrium, income earned in both sectors is the same. GRAPH 2‐2 ECON 6032 International Trade and Foreign Direct Investment Prof. Larry Qiu 9. Derive the relative demand curve relating the relative demand for fish to the relative price of fish. Solve algebraically, and then draw the curve in a diagram with the relative price of fish on the vertical axis and the relative quantity of fish on the horizontal axis. Answer: We know that workers spend 1/5 of their income on Fish. This means that 1
4
PF QF = Income and P QW = Income . Dividing these two equations we W
5
5
P 1Q
obtain the relative demand, F = W . This curve is shown in t...
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This document was uploaded on 04/07/2014.
 Spring '14

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