Trade Problem Set 70 2-2

1. Imagine that Argentina produces beef and corn using labor as the only input. Suppose Argentina liberalizes trade with the rest of the world and the price of beef in terms of corn rises. In the following table indicate the effect of free trade on the variables listed in the first column under the two alternative assumptions. In the first case assume Argentina is described by a standard Ricardian model. In the second case assume Argentina is described by an immobile factor model. You do not need to show your work. Use the following notation:

+    the variable increases
-    the variable decreases
0    the variable does not change
A    the variable change is ambiguous (i.e. it may rise, it may fall)

 

	Standard Ricardian	Immobile Factor
PB/PC	+	+
Output of beef
Output of corn
exports of beef
imports of corn
real wage of corn workers in terms of corn
real wage of corn workers in terms of beef
real wage of beef workers in terms of corn
real wage of beef workers in terms of beef

 

International Trade Theory and Policy - Chapter 70: Last Updated on 1/06/08