Suppose the economy of Utopia has a labor force of 600 workers, 100 units of capital and 400hectares of land. It produces manufactured goods (M) which use labor (LM) and capital (K) inproduction and agricultural goods (A) which use labor (LA) and land (T) in production. Theproduction functions are given by:QM = VR/LM%3DAnd Ly + LA = L = 600In autarky, PA = PM = 10.%3DSuppose Utopia engages in trade and the price of manufactured goods, PM = 20.What happens to:1. The workforce and output of manufactured goods? Of agricultural goods?2. The nominal and real wage in Utopia?3. The real return to capital and to land in Utopia?4. Will everyone support trade?

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Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter13: General Equilibrium And Welfare

Section: Chapter Questions

Problem 13.9P

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