Problem Set 70-2

FORUM

1. Suppose two countries, Brazil and Argentina, can be described by an Immobile Factor Model. Assume they each produce wheat and chicken using labor as the only input. Suppose the two countries move from autarky to free trade with each other. Assume the terms of trade change in each country as indicated below. In the remaining boxes, indicate the effect of free trade on the variables listed in the first column in both Brazil and Argentina. 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)
 in Brazil in Argentina Pc/Pw + - Output of wheat Output of chicken exports of wheat imports of wheat real wage of chicken workers in terms of chicken real wage of chicken workers in terms of wheat real wage of wheat workers in terms of chicken real wage of wheat workers in terms of wheat

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