This exercise applies the basic Ricardian model of one factor and two goods. The

Question

This exercise applies the basic Ricardian model of one factor and two goods. The table below contains the unit labor requirements in Home for each of two goods.

This exercise applies the basic Ricardian model of one factor and two goods. The table below contains the unit labor requirements in Home for each of two goods. Sausage Gasoline aLs-1 hour per pound aLG 3 hours per gallon where: aLs number of labor hours needed to produce a unit of sausage in Home aLG number of labor hours needed to produce a unit of gasoline in Home Ps the price per pound of sausage; PG the price per gallon of gasoline. If the price per gallon of gasoline (PG) is $9, the hourly wage rate in the gasoline sector of Home's economy will be O A. $27. OC. $3 OD. $9 B. $0.33.

Explanation / Answer

Answer :

The hourly wage rate in the gasoline sector of home's economy will be :

B. $0.33

Recardo has used comparative advantage in his therory. The wage per hour will be calculated dividing number of labour hours used to produce one unit of sausage by number of labour hours needed to produce one unit of gasoline

= 1/3 = $0.33

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