Problem A: The Board of Schmeckt Gut wants to convince the Government of Industria that a Free Trade Agreement with Atollia would be beneficial for Industria's economy.
Assumption:
The results of the regression analysis that you have estimated in the previous assignment (Short written assignment of Module 4) are a good indicator for other industries and sectors in Industria.
1. If we assume that a free trade agreement with Atollia would indeed increase the demand for our energy bars, what effect would this have for Schmeckt Gut's labour demand? What about the development of wages? Explain!
2. Assuming that the development of Schmeckt Gut's labour demand is a good indicator for Industria on the whole, what would be the impact on Industria's economy? Explain using an appropriate model discussed in Module 5.