1. Business
  2. Economics
  3. 5 endowment economy 10 points there are 2 countries home...

Question: 5 endowment economy 10 points there are 2 countries home...

Question details

5 Endowment Economy (10 Points) There are 2 countries, Home and Foreign, and 2 goods, Wine and Cheese. In each country the are 150 workers. But not all workers are the same: some workers are cheese-makers and some workers are wine-makers. Each cheese-maker can produce one pound of cheese and zero bottles of wine, and each wine-maker can produce one bottle of wine and zero pounds of cheese. In the Home country there are 100 cheese-makers and 50 wine-makers, and in the Foreign country there are 50 cheese-makers and 100 wine-makers. The relative demand for Cheese of each individual worker is 1. Suppose that both countries are closed to international trade, but cheese-makers and wine- makers can trade with one another within each country. What is the price of cheese (in terms of wine) in each country? 2. Are both Cheese-makers and Wine-makers better off under free trade than under international autarky in the Home country? If not, can you describe a redistributive policy that would leave both Cheese and Wine makers better off under free trade than under autarky?

Solution by an expert tutor
Blurred Solution
This question has been solved
Subscribe to see this solution