8. Consider another Ricardian example, using standard Ricardian assumptions: Labor Hours per Bottle of Wine Vintland Moonited Republic 15 10 Labor Hours per Kilogram of Cheese 10 4 Vintland has 30 million hours of labor in total per year.. Moonited Republic has 20 million hours of labor per year. a. Which country has an absolute advantage in wine? In cheese? b. Which country has a comparative advantage in wine? In cheese? c. Graph each country's production-possibility curve. Show the no-trade produc- tion point for each country, assuming that with no trade, Vintland consumes 1.5 million kilos of cheese and Moonited Republic consumes 3 million kilos of cheese. d. When trade is opened, which country exports which good? If the equilibrium international price ratio is 1/2 bottle of wine per kilo of cheese, what happens to production in each country? e. In this free-trade equilibrium, 2 million kilos of cheese and 1 million bottles of wine are traded. What is the consumption point in each country with free trade? Show this graphically. f. Does each country gain from trade? Explain, referring to your graphs as is appropriate.

ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
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Chapter1: Making Economics Decisions
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International trade

8. Consider another Ricardian example, using standard Ricardian assumptions:
Labor Hours per
Kilogram of Cheese
Labor Hours per
Bottle of Wine
Vintland
Moonited Republic
15
10
10
4
Vintland has 30 million hours of labor in total per year.. Moonited Republic has
20 million hours of labor per year.
a. Which country has an absolute advantage in wine? In cheese?
b. Which country has a comparative advantage in wine? In cheese?
PPC
c. Graph each country's production-possibility curve. Show the no-trade produc-
tion point for each country, assuming that with no trade, Vintland consumes
1.5 million kilos of cheese and Moonited Republic consumes 3 million kilos
of cheese.
d. When trade is opened, which country exports which good? If the equilibrium
international price ratio is 1/2 bottle of wine per kilo of cheese, what happens to
production in each country?
e. In this free-trade equilibrium, 2 million kilos of cheese and 1 million bottles of
wine are traded. What is the consumption point in each country with free trade?
Show this graphically.
f. Does each country gain from trade? Explain, referring to your graphs as is
appropriate.
Transcribed Image Text:8. Consider another Ricardian example, using standard Ricardian assumptions: Labor Hours per Kilogram of Cheese Labor Hours per Bottle of Wine Vintland Moonited Republic 15 10 10 4 Vintland has 30 million hours of labor in total per year.. Moonited Republic has 20 million hours of labor per year. a. Which country has an absolute advantage in wine? In cheese? b. Which country has a comparative advantage in wine? In cheese? PPC c. Graph each country's production-possibility curve. Show the no-trade produc- tion point for each country, assuming that with no trade, Vintland consumes 1.5 million kilos of cheese and Moonited Republic consumes 3 million kilos of cheese. d. When trade is opened, which country exports which good? If the equilibrium international price ratio is 1/2 bottle of wine per kilo of cheese, what happens to production in each country? e. In this free-trade equilibrium, 2 million kilos of cheese and 1 million bottles of wine are traded. What is the consumption point in each country with free trade? Show this graphically. f. Does each country gain from trade? Explain, referring to your graphs as is appropriate.
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