Answer to Question #283408 in Macroeconomics for Comfort

Question

QUESTION SEVEN

Use the following labour input requirements to answer the questions below:

Mask Sanitizer

Zambia 2 hours 6 hours

Malawi 3 hours 2 hours

a. What is the relative price of masks in terms of sanitizers in Zambia? In Malawi?

b. Where will the free trade price settle post trade? Who will export which good?

c. If the post-trade relative price of mask in terms of sanitizer is equal to 2/3, show what

happens to consumption of masks and sanitizers in Malawi and Zambia pre- and post-trade. Use

this information to calculate the wage in Malawi relative to Zambia post-trade.

d. Show that unit labor costs post-trade are consistent with the pattern of trade.

e. If you are able to graph the relative world demand and supply curves using all the above

information and solutions, kindly do so.

[15 marks]

Answer 1

a. The relative price of masks in terms of sanitizers is 3 units in Zambia and 2/3 units in Malawi.

b. Zambia will export sanitizers and Malawi will export masks.

c. If the post-trade relative price of mask in terms of sanitizer is equal to 2/3, then consumption of masks will increase in Malawi and consumption of sanitizers will increase in Zambia.

d. Unit labor costs post-trade are consistent with the pattern of trade.

e. The relative world demand and supply curves will shift to the right.