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2. Trade exploits a country and makes it worse off if its workers receive
much lower wages than workers in other nations.
[Hint: Show that even if there are wage differentials, countries can
gain from trade as long as they have a comparative advantage.]
Suppose that a LC = 1, a LW = 2, aLC = 3, aLW = 2, PC = PW = 1. It
a
follows that aaLW
LC
< PPWC < aLC . Hence, Home country specializes in
LW
production of C and Foreign country in W and they trade each good
based on comparative advantage. There will be gains from trade
even though w = aPLC
C
> w = aPWLW .
5. You must make your own case by providing evidence (data, obser-
vation, survey, etc.) and argue based on the model. Tell your own
story!