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In The No-Trade Equilibrium Stormlands: WageL = 24 WageW = ? MPLL = 4 MPLW = ? PL = ? PW = 4
Reach: Wage*L = ? Wage*W = 6 MPL*L = ? MPL*W = 1 P*L = 3 P*W = ?
(a) Which country has a comparative advantage in wheat and why?
(b) Suppose that in the trade equilibrium PL/PW = 1.2. Which good which each country export?
(c) For each country, calculate the real wage in terms of lumber and in terms of wheat.
(d) For each country, compare the values you obtained in part (d) with the real wage in terms of either good in the no-trade equilibrium. Do White Walkers in each country gain from trade?
THE PRODUCT MARKET Z=C+I+G C=a+bYd I=Io+I1Y-I2i Equilibrium condition, Y=Z, where Y represents output and Z is aggregate spending. THE FINANCIAL MARKET Md=MT+Mp MT=MTo+MT1Y Mp=Mpo
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