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Hello. I am struggling with this Ricardian Model question. For (d), can we solve this problem without knowing the

specific world prices?

Screen Shot 2019-10-01 at 9.10.14 PM.png

Screen Shot 2019-10-01 at 9.10.14 PM.png

Allowing for international trade
Now suppose that Home and Foreign are allowed to trade goods 1 and 2 freely. Let p,",
ph denote the world prices of the two goods. Assume that in the open economy, there will
be complete specialization, with each country producing only one good.
(d) Which country will specialize in the production of which good? Why? What is the
world supply of each good?
[e ) What is the wage level in each country given world prices pi , py ?
(f ) What levels of consumption, Of and C, does the household in country ; choose given
world prices pi' . P2 .
(g ) How much of each good do Home and Foreign import or export given world prices pl,
(h) What is the equilibrium world relative price py = pp /py ?
(i) What is the value of household utility per capita, 25/L', in Home and Foreign? Which
country gains or loses from trade?

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