Two countries, Canada and Japan, produce two goods, Phones (P ) and Phone Apps (A), using two factors, Skilled labor (S) and Unskilled labor (U). Phones are Skilled-labor intensive and Apps are Unskilled-labor intensive. Factors of production are perfectly mobile within countries. You do not know how many Skilled and Unskilled workers are in each country, but know that the relative price of Apps is lower in Canada than in Japan in autarky equilibrium.
(a) Autarky equilibrium
(i) Which country is Skilled-labor abundant and which is Unskilled-labor abundant?
(ii) Show in a graph similar to Figure 4-2 from the textbook what an autarky equilibrium looks like in Canada and in Japan. Put Apps on the horizontal axis and Phones on the vertical axis. Clearly label the axes, PPF, production point, consumption point, and relevant indifference curves. Explain why PPFs have a different shape in the two countries.
(iii) Which country is producing a higher ratio of Apps to Phones?