Consider a Ricardian model with two countries, the US and Ecuador, producing two goods, bananas and machines. Suppose the unit-labor requirements are: US = 4, aLM US = 8, aLB =D4. %3D aLB = 8, aB = 4, aM = 2, aM = 4. Let the US have 3200 workers and Ecuador have 400 workers. A. Which country has the absolute advantage in bananas? Why? B. Which country has the comparative advantage in bananas? Why? C. What is the autarky.terms of trade in the US?

Consider a Ricardian model with two countries, the US and Ecuador, producing two goods, bananas and machines. Suppose the unit-labor requirements are: US = 4, aLM US = 8, aLB =D4. %3D aLB = 8, aB = 4, aM = 2, aM = 4. Let the US have 3200 workers and Ecuador have 400 workers. A. Which country has the absolute advantage in bananas? Why? B. Which country has the comparative advantage in bananas? Why? C. What is the autarky.terms of trade in the US?

ENGR.ECONOMIC ANALYSIS

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ISBN:9780190931919

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Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Consider a Ricardian model with two countries, the
US and Ecuador, producing two goods, bananas and
machines. Suppose the unit-labor requirements are:
US
= 2,2LM
aLB = 8, a6 =4, aM= 2, aM = 4.
US
E
=D4, aLM
%3D
Let the US have 3200 workers and Ecuador have 400
workers.
A. Which country has the absolute advantage in
bananas? Why?
B. Which country has the comparative advantage in
bananas? Why?
C. What is the autarky.terms of trade in the US?
D. What would the pattern of trade be in fFree trade?
Why?
E. How much of each good would Ecuador produce in
free trade if complete specialization occurred?
F. Specify a plausible free trade terms of trade.

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