In the Heckscher - Ohlin model of international trade, assume that at current factor prices cloth is produced using 20 hours of labour for each unit of capital (machine) and that food is produced using only 5 hours of labour per unit of capital. Suppose that the economy's total resources are 2400 hours of labour and 240 units of capital. Use a diagram like the one we used in the lecture to draw PPF without factor substitution.

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Comparative Advantage and Absolute Advantage Analysis

The theory of absolute advantage was given by Adam Smith in the year 1776.