Unformatted text preview: gher indifference curves. 5. Assume that Home and Foreign produce two goods, televisions and cars, and use the following information to answer the questions. In the on‐trade equilibrium Home Country WageTV=12 MPLTV=2 PTV=? WageC=? MPLC=? PC=4 Foreign Country Wage*TV=? MPL*TV=? P*TV=3 Wage*C=6 MPL*C=1 P*C=? a. What is the marginal product of labor for televisions and cars in the Home country? What is the no‐trade relative price of televisions at Home? Answer: MPLc=3, MPLtv=2, and Ptv/Pc=MPLc/MPLtv=3/2. b. What is the marginal product of labor for televisions and cars in the Foreign country? What is the no‐trade relative price of televisions at Foreign? Answer: MPL*c=1, MPL*tv=2, and P*tv/P*c=MPL*c/MPL*tv=1/2. c. Suppose the world relative price of televisions in the equilibrium is Ptv/Pc=1. Which good will each country export? Briefly explain why. Answer: Home will export cars and Foreign will export televisions because Home has a comparative advantage in cars whereas Foreign has a comparative advantage in televis...
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This document was uploaded on 04/07/2014.
- Spring '14