Consider the following Ricardian model.
MPL Labor Supply
France 1/10 1/15 90
Germany 1/12 1/20 120
1. If Germany consumes 7 pens under free trade, then France consumes 3 pens.
2. If Germany consumes 7 pens under free trade, then France imports 3 pens.
For questions below, assume that under free trade, the relative price of pens equals 0.65; i.e. PpensT/PpencilsT = 0.65.
3. Draw the CPF for France, and label your picture. You can draw a new picture, or in the same picture as 1 above. What is the slope of CPF? (4 points)
4. Under free trade, the relative wage of France to Germany (wFRANCE/wGERMANY) equals 16/13.
5. Under free trade, the real wage for pencils in Germany equals 13/400.
6. Under free trade, the real wage for pencils in France equals 1/15.
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