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Wages of a country are tied to the productivity of its labour. By raising productivitya country will increase the wages in the country and increase that country±s share ofworld income.5. Consider trade between Canada and the various members of ASEAN (the Associationof Southeast Asian Nations). The following table lists the GDP of a member nation ofASEAN as a percentage of total ASEAN GDP.CountryPercent of ASEAN GDPIndonesia33Thailand18Malaysia14Singapore13Philippines12Vietnam6What prediction would the gravity model make concerning an ASEAN country±s shareof total ASEAN trade with Canada? Explain.2
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Distances can be considered roughly equivalent between an ASEAN country and Canada.The gravity model will predict that the volume of trade will be proportional to the sizeof the economies so we would expect a linear relationship between percent of ASEANGDP and volume of trade.ShareASEANgdpShare ofASEANtrade withCanadaPART B:1. Consider a Ricardian world with three goods, Cloth (C), Food (F) and Beer(B). Thereare2countries, Home and Foreign. Consumers in both countries enjoy consuming allgoods. Unit labour requirements for the production of goods are given in the followingtable:unit labour requirementsIndustryCFBHome523Foreign6122Home has a labour force,L= 1500;Foreign has a labour force,L°= 1200.(a)Complete the following table ordering the3goods in descending order of RelativeHome Productivity Advantage.GOODRELATIVE HOME PROD ADV.C65B23F143