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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. Cheese Wine alw = 5 hours per gallon Home alc = 6 hours per pound Foreign alc = 2 hours per pound ALW = 6 hours per gallon where: aLC alc = number of labor hours needed to produce a unit of cheese in Home; alw = number of labor hours needed to produce a unit of wine in Home; = number of labor hours needed to produce a unit of cheese in Foreign; = number of labor hours needed to produce a unit of wine in Foreign; alw Pc = the absolute or money price of cheese on world markets; Pw = the absolute or money price of wine on world markets. In post-trade equilibrium with Pc = Pw = $20, the wage of workers in Foreign relative to the wage of workers in Home will be equal to
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