7. Assume that Home and Foreign produce two goods, TVs and cars, and use the inf

Question

7. Assume that Home and Foreign produce two goods, TVs and cars, and use the information below to answer the following questions: In the No-Trade Equilibrium Home Foreign Wagerv 12 WagecWagervWagec 6 MPLTV4 Prv? Prv-8 Pc? a. What is the marginal product of labor for b. What is the marginal product of labor for c. Suppose the world relative price of TVs in the d. In the trade equilibrium, what is the real TVs and cars in Home? What is the no- trade relative price of TVs in Home? TVs and cars in Foreign? What is the no- trade relative price of TVs in Foreign? trade equilibrium is PTy/Pc-1. Which good will each country export? Briefly explain why. wage in Home in terms of cars and in terms of TVs? How do these values compare with the real wage in terms of either good in the no-trade equilibrium?

Explanation / Answer

All other parts are correct except part c.

With part c. You must see that after trade relative price of TV is less than the no trade relative price of TV in foreign country. This mean that the foreign country cam now import TVs at a price lower than the no trade price. And can gain from trade. Thus Home exports TVs and foreign imports TVs.

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