Question
Suppose Home (H) and Foreign (F) can both produce avocados (A) and strawberries (S). Table 1 shows the hours required to produce one unit of
Suppose Home (H) and Foreign (F) can both produce avocados (A) and strawberries (S). Table 1 shows the hours required to produce one unit of each good in each of the two countries
home foreign
Avocados - 2/3 5/7
Strawberries - 1/3 6/7
a) In the production of which fruit does Home have a comparative advantage? How about Foreign?
b) What will the range of the relative wage ratio in Foreign be in a free trade equilibrium?
c) Suppose the terms of trade for avocados is4/3(i.e.TOTA=4/3), which country gains33
more from trade for each unit of good that it exports?
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Principles of Macroeconomics
Authors: Karl E. Case, Ray C. Fair, Sharon E. Oster
12th edition
134078802, 978-0134078809
