Question 1 Suppose there are but two countries, namely A and B. Each country is indexed by "j" for j = A and T, = 0. Suppose the technology of both countries B. Both countries have no government, i.e. G; = are linear production in labor hours. That is, y, z,N, where N, is the number of working hours in country and 2, is the level of technology in country j. Suppose that ZA =2> ZB = 1 and preferences of consumers in both countries are identical a) Assuming a fixed time endowment in both countries to be equal to 1 unit, construct the PPF of each country. Putting both PPFs in the same figure and locate all important points. Comments on the differences and similarities between the two PPFs. b) Determine the competitive equilibrium in both countries. Are there any wage differentials in the equilibrium? Which one of the countries is supposed to experience a higher wage? Why? How about the allocation in both countries? e) Redo the problem "a" and "b" above, but instead assume that the labor endowment in both countries are different, i.e. h 1 and hp 4. Comment on the possible sources that generate the wage differentials, if any?

Question 1 Suppose there are but two countries, namely A and B. Each country is indexed by "j" for j = A and T, = 0. Suppose the technology of both countries B. Both countries have no government, i.e. G; = are linear production in labor hours. That is, y, z,N, where N, is the number of working hours in country and 2, is the level of technology in country j. Suppose that ZA =2> ZB = 1 and preferences of consumers in both countries are identical a) Assuming a fixed time endowment in both countries to be equal to 1 unit, construct the PPF of each country. Putting both PPFs in the same figure and locate all important points. Comments on the differences and similarities between the two PPFs. b) Determine the competitive equilibrium in both countries. Are there any wage differentials in the equilibrium? Which one of the countries is supposed to experience a higher wage? Why? How about the allocation in both countries? e) Redo the problem "a" and "b" above, but instead assume that the labor endowment in both countries are different, i.e. h 1 and hp 4. Comment on the possible sources that generate the wage differentials, if any?

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter20: Economic Growth In The Global Economy

Section: Chapter Questions

Problem 4P

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