2. You are given the information of a country Xanadu and the rest of the world. You make several Ricardian assumptions: These are the only two commodities, there are constant ratios of input to output whatever the level of output of cars and PC, and competition prevails in all markets.

Inputs per Unit Inputs per Unit

Of cars Output of PC Output

Xanadu 100 150

Rest of the world 70 70

a. Does X have an absolute advantage in producing cars? PC?

b. Does ROW have a comparative advantage in producing cars? PC?

c. If no international trade were allowed, what price ratio would prevail between cars and PC within X?

d. If free international trade is opened up, what are the limits for the equilibrium international price ratio? What product will X export? Import?