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consider a ricardian model of two countries (home and foreign) and two goods (textiles and chocolates) the production technologies are specified by the unit labor
consider a ricardian model of two countries (home and foreign) and two goods (textiles and chocolates) the production technologies are specified by the unit labor requirements shown below:
home foreign
textiles(t) 3 6
chocolates(c) 3 2
suppose there are 60 units of labor in each country, consumers have "nice" and identical preferences and both commodities are consumed in autarky.
justify fully: use a diagram or an equation when you are able to do so (when drawing PPFs use the horizontal axis for textiles)
- graph the production possibilities frontier and a possible autarky point for both countries (put textiles in the horizontal axis). what are the autarky relative prices Pt/Pc in each country ?
- which country has a comparative advantage in textiles ? in chocolates ? why ?
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