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| Now suppose that the technological innovation occurs in the computer sector in the South: one unit of southern labor can now produce 10 computers instead of 2. (Other parameters take their original values.) (a) Does the North still have a comparative advantage in producing computers? If we allow these two economies to trade, will there be any reason for them to trade? Explain. (b) How does this change affect the North? In particular, compare northern economic performance before the southern innovation with northern economic performance after the innovation. (c) Discuss your findings: What do they mean for the case for free trade? (Be sure to note how the North would fare under autarky.) |
