23 Jun Calculate the real wage for widgets in the Home c
Calculate the real wage for widgets in the Home country under closed economy equilibrium.
(6). If these two countries trade, then what is the lower limit of the relative price of cloth in the free-trade equilibrium (i.e. PclothT/PwidgetT)?
For the questions below, assume that PclothT/PwidgetT = 1.
(7). In your PPF picture in (2) above, illustrate that the Home country gains from trade. You may also draw a new picture below if you wish. Please label the slope of the CPF.
(8). Calculate the real wage for widgets in the Home country under the free-trade equilibrium.
(9)
Calculate the real wage for widgets in the Home country under closed economy equilibrium.
(6). If these two countries trade, then what is the lower limit of the relative price of cloth in the free-trade equilibrium (i.e. PclothT/PwidgetT)?
For the questions below, assume that PclothT/PwidgetT = 1.
(7). In your PPF picture in (2) above, illustrate that the Home country gains from trade. You may also draw a new picture below if you wish. Please label the slope of the CPF.
(8). Calculate the real wage for widgets in the Home country under the free-trade equilibrium.
(9) Calculate the wage of the Home country relative to the wage of the Foreign country under free trade.
(10) According to your answer to (9), which country has a higher wage under free trade? What is the intuition for this?
(11) T/F? Because the Home country gains from trade, the real wage for cloth under free trade is higher than under closed economy.
Question 2. This question helps you get a deeper understanding of the wage equation. (6 points, 3 points each).
(1) According to our wage equation, w = P x MPL. We also know that in competitive markets, price equals marginal cost. What is the expression for marginal cost, according to the wage equation?
(2) Explain, in plain English, why the expression you derive above is marginal cost.
(10) According to your answer to (9), which country has a higher wage under free trade? What is the intuition for this?
(11) T/F? Because the Home country gains from trade, the real wage for cloth under free trade is higher than under closed economy.
Question 2. This question helps you get a deeper understanding of the wage equation. (6 points, 3 points each).
(1) According to our wage equation, w = P x MPL. We also know that in competitive markets, price equals marginal cost. What is the expression for marginal cost, according to the wage equation?
(2) Explain, in plain English, why the expression you derive above is marginal cost.
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