Part 2: Questions.
Provide detailed and clear answers. Clearly label axes and curves on each graph.
Ricardian model: Import demand curve:
In the Ricardian model, consider Thailand and Germany. Thailand exports electronics and
production of electronics is Q
=100 under full specialization. Moreover,
we assume that the relative price of cars is 1 in Autarky and we also assume that Thai
consumers have Cobb-Douglas preferences in cars and electronics:
Depending on the price of electronics, P
, what is the total GDP of Thailand?
Depending on the relative price of cars P
, how many cars does Thailand import?
Draw Thailand’s import demand curve for cars. Also draw a hypothetical
supply curve for cars for Germany (no calculation required for the export supply curve).
Now, suppose that Germany welcomes many new immigrants, such that its size
increases. What is the effect on the relative price of cars? (illustrate on previous graph)