ume that Home and Foreign produce two oods, TVs and cars, and use the informatio

Question

ume that Home and Foreign produce two oods, TVs and cars, and use the information below to answer the following questions: In the No-Trade Equilibrium Home Foreign Wage,v= 12 MPLTV4 PTV? Wagec = ? MPLc = ? Wagerv-? MPLV? PTV-8 Wagec-6 MPL 1 a. What is the marginal product of labor for TVs and cars in Home? What is the no- trade relative price of TVs in Home? b. What is the marginal product of labor for TVs and cars in Foreign? What is the no- trade relative price of TVs in Foreign? c. Suppose the world relative price of TVs in the trade equilibrium is Prv/Pc 1. Which good will each country export? Briefly explain why. d. In the trade equilibrium, what is the real 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

Solution: Marginal product of labor is a measurement of a change in output when additional labor is added. However, all other factors remain constant. To calculate marginal product of labor you simply divide the change in total product by the change in labor

A. MPLC=3, MPLTV= 2, and PTV/ PC=MPLC/ MPLTV= 3/2

B.MPL*C=1, MPL*TV= 2, and P*TV/ P*C= MPL*C/ MPL*TV= ½

C. Looking at the above scenerio Home has comparative advanatage of Cars and Foreing has a comparative advantages in television therefore home will export Cars and Foreign will export Television.

D.Home is better off with trade because its real wage in terms of televisions has increased.

Home wage in trade = MPLc=3 units of Cars or MPLc= 1*3 =3 units

Home wages without trade = MPLc=3 units of Car or MPLtv= 3 units

Related Questions

Navigate

• Browse (All)
• Browse U
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.