International trade exercise 1.

In a two nation and two commodity case, Suppose in one hour of labour time, Nation 1 can produce20 kilograms of wheat,while nation two can produce 25 kilograms of wheat in one hour of labour time. On the other hand, one hour of labour time can produce 80 yards of cloth in nation 1, and 50 yards of cloth in nation two.

(a)Determine the commodity of absolute advantage for each nation (explain why)

(b)Suppose the two nations exchange 25 kg of wheat for 60 cloth, measure the gains for each nation in terms of cloth gained and labour time saved.

(c)Calculate the range for the rate of exchange for mutually beneficial trade for 25 W.