Consider two countries, Spain and Russia and two goods, wine and vodka. Labour is the only factor of production. The per unit labour requirements for wine is 2 in Spain and 5 in Russia. Meanwhile the per unit labour requirements for vodka is 2 in each of the two countries. The wages in Spain are 50 % higher than the wages in Russia. What is the cost of producing wine in Spain relative to the cost of producing wine in Russia? What is the cost of producing vodka in Spain relative to the cost of producing vodka in Russia? In the absence of transport costs will there be trade? If yes, then who will specializein what? Illustrate your answer numerically. Now introduce transport costs: Exporting wine and vodka abroad increases the initial cost by 100 %. What happens to the trade between Spain and Russia? Illustrate your answer numerically.
Consider two countries, Spain and Russia and two goods, wine and vodka. Labour is the only factor of production. The per unit labour requirements for wine is 2 in Spain and 5 in Russia. Meanwhile the per unit labour requirements for vodka is 2 in each of the two countries. The wages in Spain are 50 % higher than the wages in Russia.
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What is the cost of producing wine in Spain relative to the cost of producing wine in Russia? What is the cost of producing vodka in Spain relative to the cost of producing vodka in Russia?
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In the absence of transport costs will there be trade? If yes, then who will specializein what? Illustrate your answer numerically.
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Now introduce transport costs: Exporting wine and vodka abroad increases the initial cost by 100 %. What happens to the trade between Spain and Russia? Illustrate your answer numerically.
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