the assumptions of the Ricardian model are satisfied. Two goods are
(Y). There are two countries: North and
Suppose that it takes 5 workers to produce a
in the South and 10 workers to produce
in the North. In
the South, 2
workers are needed to produce 1
; while in the
North, only 1
worker is needed to
produce a unit of
Assume that there are 80 workers in the
South and 12
0 in the North.
Let demand in each country be represented by the utility function
(a) Find the autarky equilibrium prices and outputs in each country.
Which country will
export which good in equilibrium? Why?
(c) Find the equilibrium free trade p
rice ratio (i.e. p