Fall 2017 Gary Lyn Econ 455 Problem Set 1 Due September 26, 2017 in Class 1. (Ricardian Model, Chapter 2) Consider a Ricardian model of comparative advantage. There are two countries, India and the US. Each country can produce two goods, shoes (S) and food (F). Assume India has 600 workers and the US has 200 workers. Labor productivity in each country is: Labor Productivi b Conn: and Good 4 shoes/da 5 shoes/d6 4 bushelsiday 15 bushels/day a)Which country has the absolute advantage in shoes?; in food? Explain. i What is the opportunity cost of producing food in India?; in the U.S.? What is the opportunity cost of producing shoes in India?; in the the U.S.? b) Derive and sketch the production possibility frontier for each country. Assume that, prior to trade, the U.S. produces 500 shoes and 1,500 bushels of food, while India produces 1,200 shoes and 1,200 bushels of food. Show how it is possible, by altering production in each country, to increase total world output of both goods. c) In the absence of trade, what would autarky (no trade) relative prices be in each country? What would the real wage (in terms of each good) be in each country? (1) If trade is allowed between the two countries, what will the pattern of trade be (i .e., what good will the US export and what good will it import), how does trade affect the real wage in each country and what can you conclude about the post-trade relative price of shoes