(Ricardian Model) In class we worked through the trade example where Home had a comparative advantage in cheese (alc /alw < alc* /alw*). The result was that world price ratio was between the autarky price ratios of the two countries. We showed for the Home country that the opening of trade resulted in the workers’ real wage in terms of cheese remaining the same while the real wage in terms of wine increased. (There is no need to use diagrams to answer the questions below.)
(a) With the opening of trade what will the nominal wage W* be in the Foreign country? (You will not be able to find a numerical value here.) Briefly explain.
(b) What will happen with the opening of trade to the Foreign country’s real wage in terms of cheese and wine? Briefly explain.