Theverticalportionofthecurveatthequantity16corresponds

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Unformatted text preview: he P 4 QF W following graph. ECON 6032 International Trade and Foreign Direct Investment Prof. Larry Qiu GRAPH 2‐4 10. Derive the world relative supply curve and draw it on the diagram that you created in Problem 9. Answer: The world relative supply curve is derived by combining the relative supply curve of both countries under autarky. In the bottom section (when the relative price is below 1), both countries produce wheat. In the middle section (when the relative price is between 1 and 2), Iceland produces fish and Finland produces wheat. In the top section (when the relative price is above 2), both countries produce wheat. The vertical portion of the curve at the quantity 1/6 corresponds to the situation in which Iceland is producing fish and Finland produces wheat. The population of Iceland is 1 million, so 1 million fish are produced. The population of Finland is 1.5 million and each person produces 4 units of wheat, so 6 millions of units of wheat are produced. The relative quantity for that range of prices is 1 / 6. ECON 6032 International Trade and Foreign Direct Investment Prof. Larry Qiu GRAPH 2‐5 11. Compute the equilibrium relative price of fish under free trade, and draw the budget lines for a typical worker in each country. Whi...
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This document was uploaded on 04/07/2014.

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