USA and France have one-factor Ricardian economies with labor inputs per unit of
ID: 1098075 • Letter: U
Question
USA and France have one-factor Ricardian economies with labor inputs per unit of output given by the following table. USA 120 units of labor and France has 180 units of labor.
USA uses 8 units of labor per output for wine and 2 units of labor per output for cloth
France uses 9 units of labor per output for wine and 3 units of labor per output for cloth
Is there a range of relative world prices for wine over which both countries would specialize in the production of cloth? If so, what is it? (the relative price of wine is measure as (Pw/Pc))
a) Is there a range of relative world prices for wine over which one country would specialize in the production of cloth and the other in wine? If so, what is it?
a) Is there a range of relative world prices for wine over which both countries would specialize in the production of wine? If so, what is it?
Explanation / Answer
Opportunity cost of one wine in U.S, is 4 cloths
Opportunity cost of one wine in France is 3 cloths
Therefore if Pw/Pc > 4 it would be ebtter for both countries to specialize in wine.
If 3<Pw/Pc <4 rhe U.S, should specialize in cloth and France in wine
If Pw/Px< 3 both countries should specialize in cloth.
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