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?
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