2. (32pt) Suppose two countries, Canada and Mexico, produce two goods, timber an

Question

2. (32pt) Suppose two countries, Canada and Mexico, produce two goods, timber and televisions. Assume that land is specific to timber, capital is specific to televisions, and labor is free to move between the two industries. When Canada and Mexico engage in free trade, the relative price of televisions falls in Canada and the relative price of timber falls in Mexico. 1) In a figure similar to the one we showed in class, show how the wage changes in Canada due to a fall in the price of televisions, holding constant the price of timber. Can we predict that change in the real wage? 2) What is the impact of opening trade on the rentals on capital and land in dla hat hange in aretals on capital 3) What is the impact of opening trade on the rentals on capital and land in Mexico? Can we predict that change in the real rentals on capital and land? 4) In each country, has the specific factor in the export industry gained or lost and has the specific factor in the import industry gained or lost?

Explanation / Answer

The Canada Economy is a highly developed mixed economy with 10th largest GDP by nominal and 16th largest GDP by PPP in the world. As with other developed nations, the country's economy is dominated by the service industry, which employs about three quarters of Canadians.[21] Canada has the fourth highest total estimated value of natural resources,

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