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Suppose there are two countries: Sweetland and Vinegaryard; and there are two sectors in both...

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Finance

  1. Suppose there are two countries: Sweetland and Vinegaryard; and there are two sectors in both countries: a tradable goods sector for manufacturing automobiles and a non-tradable goods sector for providing restaurant services. Vinegaryard has higher productivity in automobile manufacturing than Sweetland; while both countries have the same productivity in restaurant services. Relevant data have been collected as follows:
  • The price of a model of car is 5,000 and 25,000 in Vinegaryard and Sweetland respectively;
  • The wage rate in Vinegaryard is 5/wh, i.e., 5 per worker per hour worked, indicating the marginal product of labour is 0.001 car/wh, or one worker in one hour worked can make 0.001 cars;
  • The wage rate in Sweetland is 12.5/wh, indicating the marginal product of labour is 0.0005/wh;
  • The marginal product of labour is 1 dinner/wh in both Vinegaryard and Sweetland, i.e., one chef in one hour worked can prepare 1 dinner in both countries;
  • The economy of Vinegaryard consists of 50% of the tradable goods sector and 50% the non-tradable goods sector.

What is the ratio of the price and the price for a dinner?

The exchange rate is = 5 (25,000 / 5000) - maybe this helps

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