Question

Consider the following Ricardian model. MPL                                   &

Consider the following Ricardian model.

MPL                                       Labor Supply

Pens                Pencils

            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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