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U.S.

Wheat - 4 bushels/hour

Cloth - 1 yards/hour

U.K.

Wheat - 1 bushels/hour

Cloth - 2 yards/hour

3. The above table shows you the productivities of wheat and cloth for U.S. and U.K. workers. Given these information, answer the following questions: (a) Suppose U.S. and U.K. are open to trade according to comparative advantage. When one unit of wheat is traded, what is the range of mutually agreeable/beneficial trade in terms of cloth? (b) Alternatively, when one unit of cloth is traded, what is the range of mutually agreeable/beneficial trade in terms of wheat? Show all work.

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Samantha Balando
Samantha BalandoLv7
28 Sep 2019

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Related questions

Wine Cheese

France

Wine - 2 hours/barrel
Cheese - 4 hours/pound

Italy

Wine - 6 hours/barrel

Chese - 10 hours/pound

1. The above table shows you the productivities of wine and cheese for French and Italian workers. Given these information, answer the following questions: (a) Which country has the comparative advantage in the production of wine? Which country has the comparative advantage in the production of cheese? (b) Suppose France and Italy are open to trade according to comparative advantage. When one unit of wine is traded, what is the range of mutually agreeable/beneficial trade in terms of cheese? Show all work.

The following table shows the hourly output produced by one unit of labor in each country:

?

Cloth

Wine

Italy

1/10 yd per hour

1/12bl per hour

France

1/9 yd per hour

1/5bl per hour
?

Cloth

Wine

Italy

yds

bl

France

yds

bl

Total

 ? ?

?

Which country has a comparative advantage in wine? In clothing? Why?

Suppose that Italy has 11000 labor hours available and France has 15000 labor hours available. Further assume that, in autarky (closed to the rest of the world), Italy uses 5000 hours to produce cloth, and the rest to produce wine, while France uses 5000 hours to produce cloth. What are the outputs without specialization and trade (number of units)?

Suppose that the nations now alter their production patterns and engage in complete specialization in the goods in which they have a comparative advantage. What are the outputs? How much is gained from specialization?

?

Cloth

Wine

Italy

yds

bl

France

yds

bl

Gains

 ? ?

?

1. When Home has a comparative advantage over Foreign in cloth,

A. The Autarky relative price of cloth in terms of wine is lower at Home than in Foreign:

B. Foreign must have a comparative advantage over Home in wine

C.Home will specialize in producing cloth when there is free trade

D. Both (A) and (B) are correct

E. (A), (B), and (C) are correct.

2. In the Ricardian Model, with countries Home and Foreign and with two goods under trade, assume aLC/ aLW <aLC/ aLW where aLC and aLW are unit labor requirements for cloth and wine in Home and aLC and aLW in Foreign. Suppose a Home-export biased catch-up occurs in Foreign, i.e. aLC decreases. Then it is the case that:

A. The relative price of cloth (vs. food) may go down.

B. The terms of trade of Foreign must improve

C. The terms of trade of Home may remain unchanged.

D. (A) and (C)

E None of the above

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