Problem 1 . ( 10 points . ) This problem is based on the Ricardian Model . Assume that countries , Gryffindor and Slytherin , use troll labor to…
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Problem 1 . ( 10 points . ) This problem is based on the Ricardian Model . Assume thatcountries , Gryffindor and Slytherin , use troll labor to produce 2 goods , swords and broom( 2 ) In Gryffindor . I troll can produce 2 swords or 4 brooms , while in Slytherin the productionof I sword requires S trolls and the production of I broom requires 2 trolls . Assume that there are100 trolls in each country Draw a PPE for each country( b ) Which country has a comparative advantage in swords and why ?( c ) Suppose that in the trade equilibrium PS / PB = 23 . Which good will each country export ?( 1 ) For each country , calculate the real wage in terms of swords and in terms of brooms( e ) For each country . compare the values you obtained in part ( d ) with the real wage in terms ofeither good in the no – trade equilibrium . Do trolls in each country gain from trade ?( 1) How much will the trolls of each country consume under autarky and if there is trad
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