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This exercise applies the basic Ricardian model of one factor and two goods. The table below contains the unit labor requirements in Foreign and Home
This exercise applies the basic Ricardian model of one factor and two goods. The table below contains the unit labor requirements in Foreign and Home for each of two goods. Chocolate Wine Home abs = 1 hour per pound aLW = 3 hours per gallon Foreign all = 5 hours per pound as\" = 4 hours per gallon where: aLC = number of labor hours needed to produce a unit of chocolate in Home; aLW = number of labor hours needed to produce a unit of wine in Home; 3:0 = number of labor hours needed to produce a unit of chocolate in Foreign; aLtw = number of labor hours needed to produce a unit of wine in Foreign; PC = the absolute or money price of chocolate on world markets; PW = the absolute or money price of wine on world markets. As long as the world equilibn'um relative price (PCFPW) lies between 0.33 and 1.25 gallons. the two countries will specialize. with all Home workers producing
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