Question

3. (Full Ricardian Model: Basic (30 points))

Consider 2 countries, Holland and

Sweden (H and S). The marginal productivities of one

year of labor in the industries Machinery (M) and Furniture (F) are given in the following

table (see attached):

Each country has a population of 10 million people, all of whom provide one unit of

Labor.

a. Graph the PPFs for Holland and Sweden. Throughout the problem, put Machinery on the

X-Axis.

b. What is the formula for the Marginal Rate of Substitution?

c. In autarky, what is the production/consumption levels of M and F in Holland? In

Sweden?

d. What is the utility level for Holland in Autarky? For Sweden?

e. Plot the excess demand and excess supply curves for Machinery at world price ratios

(P=Pm/Pf) betgreater than 1. (As part of this, you'll need to determine which country is

the excess demander and which is the excess supplier for M.)

f. At what price ratio does excess demand equal excess supply for Machinery?

g. At the price ratio you found in part f, how much Furniture is exchanged across the

countries?

h. After trade, what is the utility level for Holland? For Sweden?

### Recently Asked Questions

- Please refer to the attachment to answer this question. This question was created from TraceyW18Assign.2.doc.

- Please refer to the attachment to answer this question. This question was created from Econ520 HW2 - Summer 2016. Additional comments: "whats the answer"

- Please refer to the attachment to answer this question. This question was created from Econ520 HW2 - Summer 2016. Additional comments: "whats the answer"