Answer to Question #212083 in Finance for Tanzina Akter

Question #212083

Consider a world consisting of two countries, Belgium and Holland. Belgium has

L=100 workers and Holland has L*=200 workers, the only input. There are two goods

– bread (B) and tulips (T).

In Belgium: MPLB=1 and MPLT =1/2, in Holland: MPL*


B = 1/2 and MPL*

T =1.


(a) Which country has a comparative advantage in which good?

(b) Draw the production possibilities frontier for each country. Draw the relative

supply of bread (B/T) curve for each country. Assume that each country has the same

downward-sloping relative demand for bread curve. What is the autarky equilibrium

relative price of bread in each country?

(c) Now derive and draw the world relative supply of bread curve.


1
Expert's answer
2021-07-01T03:52:01-0400

a: Belgium has comparative advantage in tulips while Holland has comparative advantage in bread .

b: Belgium



Holland



c:

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