Assume that the standard assumptions of the Ricardian model hold. Suppose that the following Table shows the output in terms of units of coal (C) and pairs of shoes (S) that is produced when 1 unit of labour is employed in the UK and in Italy: UK Italy Coal 3 1 Shoes 6 3 a) What is the opportunity cost of producing a pair of shoes in terms of coal in the UK? What is the opportunity cost of producing a pair of shoes in terms of coal in Italy? b) What is the price ratio (of shoes to coal) in UK under autarky, that is Ps/Pc? What is the price ratio in Italy under autarky, that is Ps*/Pc*? c) In which sector does UK have a comparative advantage? In which sector does Italy have a comparative advantage? d) In which sector (or sectors) does UK have an absolute advantage? e) Suppose the amount of labour in the UK is L and in Italy is L*. Sketch the following with shoes on the vertical axis and coal on the horizontal axis. i) Derive and sketch the transformation curve (also called production possibilities frontier) for UK. Please label the axes and slopes and intercepts of the lines. ii) Derive and sketch for Italy the transformation curve. Please label the axes and slopes and intercepts of the lines. 1