(Ricardian Model) In class we worked through the trade example where Home had a comparative advantage in cheese (alc /alw < alc* /alw*). The result was that world price ratio was between the autarky price ratios of the two countries. We showed for the Home country that the opening of trade resulted in the workers’ real wage in terms of cheese remaining the same while the real wage in terms of wine increased. (There is no need to use diagrams to answer the questions below.) (a) With the opening of trade what will the nominal wage W* be in the Foreign country? (You will not be able to find a numerical value here.) Briefly explain. (b) What will happen with the opening of trade to the Foreign country’s real wage in terms of cheese and wine? Briefly explain.

ECON MACRO
5th Edition
ISBN:9781337000529
Author:William A. McEachern
Publisher:William A. McEachern
Chapter2: Economic Tools And Economic Systems
Section: Chapter Questions
Problem 2.3P
icon
Related questions
Question
100%

.(Ricardian Model) In class we worked through the trade example where Home had a comparative advantage in cheese (alc /alw < alc* /alw*). The result was that world price ratio was between the autarky price ratios of the two countries. We showed for the Home country that the opening of trade resulted in the workers’ real wage in terms of cheese remaining the same while the real wage in terms of wine increased. (There is no need to use diagrams to answer the questions below.)

(a) With the opening of trade what will the nominal wage W* be in the Foreign country? (You will not be able to find a numerical value here.) Briefly explain.

(b) What will happen with the opening of trade to the Foreign country’s real wage in terms of cheese and wine? Briefly explain.

Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 2 steps

Blurred answer
Knowledge Booster
Comparative Advantage
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
ECON MACRO
ECON MACRO
Economics
ISBN:
9781337000529
Author:
William A. McEachern
Publisher:
Cengage Learning
Principles of Economics 2e
Principles of Economics 2e
Economics
ISBN:
9781947172364
Author:
Steven A. Greenlaw; David Shapiro
Publisher:
OpenStax