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Ricardian

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4. Full Ricardian Model Problem a. Based on Problem 1, US PPF line can be defined as L = -1/6S + 1,500 Canada PPF line L = -3/40 S + 105 The US equilibrium production / consumption is at a point where MUs = Ps. From problem 1, Ps/Pl = 6=> Ps = 6Pl .6L.4/S.4 = 6Pl MUl = Pl => .4L.6/S.6 = Pl Substituting the value of Pl into equation (Ps = 6Pl), we get .6L.4/S.4 =6*(.4L.6/S.6) .6L.4/S.4 =2.4 L.6/S.6 L.4/S.4 /(L.6/S.6) = 4 S.2/L.2 = 4 Substituting the value of L from the PPF line definition, S.2 / (-1/6S + 1,500).2 = 4 S ≈ 8,948 L≈9 Canada: From Problem 1, Ps/Pl =40/3 Ps = (40/3) Pl Since at ...
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