Ricardian Model. Consider two countries: A and B. Labour is the only factor of production for goods X and Y. Consider the following matrix of unit labour requirements. X Y Labor Endowments Country A aLx = 8 aLy = 4 240 Country B aLx* = 6 aLy* = 2 120 Which country has an absolute advantage in producing good X? Good Y? Which country has comparative advantage in producing good X? What is the autarky relative price of good X for country A? For country B?
Ricardian Model. Consider two countries: A and B. Labour is the only factor of production for goods X and Y. Consider the following matrix of unit labour requirements. X Y Labor Endowments Country A aLx = 8 aLy = 4 240 Country B aLx* = 6 aLy* = 2 120 Which country has an absolute advantage in producing good X? Good Y? Which country has comparative advantage in producing good X? What is the autarky relative price of good X for country A? For country B?
Economics: Private and Public Choice (MindTap Course List)
16th Edition
ISBN:9781305506725
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Chapter2: Some Tools Of The Economist
Section: Chapter Questions
Problem 7CQ
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. Ricardian Model. Consider two countries: A and B. Labour is the only factor of production for goods X and Y.
Consider the following matrix of unit labour requirements.
|
X |
Y |
Labor Endowments |
Country A |
aLx = 8 |
aLy = 4 |
240 |
Country B |
aLx* = 6 |
aLy* = 2 |
120 |
- Which country has an
absolute advantage in producing good X? Good Y? Which country hascomparative advantage in producing good X? - What is the autarky relative price of good X for country A? For country B?
- Draw the world relative supply curve RS for good X. Label all the axes (relative price of good X on the vertical axis and world output of x relative to y on the horizontal axis) and the relevant points.
- Suppose that the world relative demand RD for good X is given by:
(Px/Py) = 7 – 9 * ( ( Qx +Q*x) / (Qy + Q*y) ).
With free trade: (i) What will be the equilibrium world relative price of good X be equal to? (ii) Calculate the equilibrium wage rate w in A relative to that in B under free trade: w/w*.
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