Q.NO.1:

A) The following table shows the labor hour required to produce one unit of each commodity

WheatCloth

United States (US)80-Hours90-Hours

United Kingdom (UK)120-Hours100-Hours

(i) which country has absolute advantage in wheat and which country has absolute in clothing.

(ii) suppose UK has 12200 hours of labour. Before trade this country is using 5000 hours of labour for clothing and remaining for wheat. How much wheat and how much clothing will be produced in autarky situation by UK.

(iii) suppose US has 7200 hours of labour. Before trade this country is using 3600 hours of labour for wheat remaining for clothing. US will produce how much wheat and how much clothing in autarky situation.

(iv) suppose both country agree to trade at 10C : 10W, what will be the consumption of wheat and clothing in both countries i.e. UK and US.

B.

The following table shows the labor hour required to produce one unit of each commodity

WheatCutleryTapesCoolerClothWage Rates

US30-Hours60-Hours45-Hours48-Hours54-Hours$2/Hour

UK20-Hours30-Hours35-Hours42-Hours60-Hours3/Hour

$1=0.8

(a) Is there basis for trade?

(b) What would the price of each product in each country?

(c) Which commodities each country will export?

(d) What are the wage limits in each country