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    gloryrolg's Avatar
    gloryrolg Posts: 2, Reputation: 1
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    #1

    Aug 19, 2018, 02:17 AM
    How does the new world price affect the relative wage in ricardian model
    The Ricardian model. Germany and Japan produce cars and motorcycles. In Germany,
    One car requires four units of labor and one motorcycle requires two units of labor. In Japan,
    The corresponding labor requirements are five for cars and one for motorcycles. Suppose
    That in a free trade equilibrium the relative world price of cars in terms of motorcycles
    Equals three.
    (I) Which country has a comparative advantage in cars? In motorcycles?
    (ii) What can you say about the pattern of trade?
    (iii) Calculate the relative wage of Germany in terms of Japan
    (iv) Suppose consumer preferences shift toward cars and the relative world price of
    Cars in terms of motorcycles increases from three to four. What happens to the
    Relative wage?

    I have already solved first three questions, the relative wage is 0.3. But I got confused with the last question. How to get the new relative wage. Can I do the same calculation like part 3 with just changing 3 to 4?
    Curlyben's Avatar
    Curlyben Posts: 18,468, Reputation: 1857
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    #2

    Aug 19, 2018, 02:19 AM
    What do YOU think.
    While we're happy to help we wont do all the work for you.
    Show us where you are having an issue and we'll work it through with you.
    gloryrolg's Avatar
    gloryrolg Posts: 2, Reputation: 1
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    #3

    Aug 19, 2018, 02:48 AM
    My bad.So I solved first three parts. Germany has competitive advantage in producing cars and Japan has competitive advantage in producing motorcycles. When the world relative price is 3. The relative wage equals (unit labour cost of motorcycle in Japan/unit labout cost of car in Germany)*relative price, which is 0.3.In question 4, the consumer preference changes and world price is 4 now. How will this affect the relative wage? Can I simply replace the 3 by 4 in the equation and get the new relative wage? Should I consider other factors, such as consumer preference?

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