Question
Germany and India can produce cloth and wheat. In Germany, it takes 8 hours to make a unit of cloth and 10 hours to make
Germany and India can produce cloth and wheat. In Germany, it takes 8 hours to make a unit of cloth and 10 hours to make a bushel of wheat. In India, it takes 15 hours for cloth and 24 hours for wheat. a). Which country has absolute advantage in wheat? In cloth? b). What is the opportunity cost of wheat (in units of cloth) in Germany? In India? c). When these countries open to trade, which country will export wheat? Which will export cloth? d). Is it possible for the wheat-exporting country to demand 2 bushels-per-yard for its wheat? Explain. e). Suppose the unit labor requirement for wheat in India falls to 15 hours per bushel. Would this productivity improvement in India impact the pattern of trade (i.e., who imports and exports what)?
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