Consider the following production data for England and Portugal.
England
Portugal
Labor force
25
200
Number of bottles of wine
per worker
40
50
Number of wheels of cheese
per worker
4
1
(a) Which country has an absolute advantage in the production of each good? Which country
has a comparative advantage in the production of each good?
(b) Suppose prices/wages are in terms of wine. Assuming each country spends 50% income on cheese and 50% on wine, with no trade, what is the wage and price of cheese in
each country? What is the total production of wine and cheese in each country?
(c) Suppose each country specializes in their comparative advantage good. After trade, what is the total global production of each good?
Consider the following production data for England and Portugal.
| England | Portugal | |
| Labor force | 25 | 200 |
| Number of bottles of wine | ||
| per worker | 40 | 50 |
| Number of wheels of cheese | ||
| per worker | 4 | 1 |
(a) Which country has an absolute advantage in the production of each good? Which country
has a comparative advantage in the production of each good?
(b) Suppose prices/wages are in terms of wine. Assuming each country spends 50% income on cheese and 50% on wine, with no trade, what is the wage and price of cheese in
each country? What is the total production of wine and cheese in each country?
(c) Suppose each country specializes in their comparative advantage good. After trade, what is the total global production of each good?
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Related questions
The following table shows the output produced by one unit of labour in each country:
|
Wine |
Clothing |
|
|
Portugal |
1/80 bl per hr |
1/90 yd per hr |
|
England |
1/120 bl per hr |
1/100 yd per hr |
- Which country has a comparative advantage in wine? In clothing? Why?
- Suppose that Portugal has 18000 labour hours available and England has 10000 labour hours available. Further assume that, in autarky (closed to the rest of the world), Portugal uses 11000 hours to produce wine, and the rest to produce clothing, while England uses 8000 hours to produce wine. What are the outputs without specialization and trade (number of units)?
|
Wine |
Clothing |
|
|
Portugal |
bl |
yd |
|
England |
bl |
yd |
|
Total |
bl |
yd |
- Suppose that the nations now alter their production patterns and engage in complete specialization in the goods in which they have a comparative advantage (the nations use all their hours for the production of one good). What are the outputs? How much is gained from specialization?
|
Wine |
Clothing |
|
|
Portugal |
bl |
yd |
|
England |
bl |
yd |
|
Gains |
