Ricardo Model: Suppose there are two countries, Home and Foreign, that produce two goods, fish (F) and edamame (E), using only labor. In the Home country 6 units of labor are required to produce each unit of fish and the same for each unit of edamame. In the Foreign country, 2 units of labor is required to produce each fish and 3 units of labor are required for each unit of edamame. Each country has a labor force of 30 units available for production. a. Which country has an absolute advantage in fish? in edamame? Why? b. Which country has a comparative advantage in which good? c. Write the equation of the production possibilities frontier for each country and draw them (with QF on the vertical axis and QE on the horizontal axis). The PPF represents the possible points of production of fish and edamame. What does the slope of this frontier indicate?
Ricardo Model: Suppose there are two countries, Home and Foreign, that produce two goods, fish (F) and edamame (E), using only labor. In the Home country 6 units of labor are required to produce each unit of fish and the same for each unit of edamame. In the Foreign country, 2 units of labor is required to produce each fish and 3 units of labor are required for each unit of edamame. Each country has a labor force of 30 units available for production. a. Which country has an absolute advantage in fish? in edamame? Why? b. Which country has a comparative advantage in which good? c. Write the equation of the production possibilities frontier for each country and draw them (with QF on the vertical axis and QE on the horizontal axis). The PPF represents the possible points of production of fish and edamame. What does the slope of this frontier indicate?
Chapter1: Making Economics Decisions
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Transcribed Image Text:Ricardo Model: Suppose there are two countries, Home and Foreign, that produce
two goods, fish (F) and edamame (E), using only labor. In the Home country 6 units
of labor are required to produce each unit of fish and the same for each unit of
edamame. In the Foreign country, 2 units of labor is required to produce each fish and
3 units of labor are required for each unit of edamame. Each country has a labor force
of 30 units available for production.
a. Which country has an absolute advantage in fish? in edamame? Why?
b. Which country has a comparative advantage in which good?
c. Write the equation of the production possibilities frontier for each country and
draw them (with QF on the vertical axis and QE on the horizontal axis). The
PPF represents the possible points of production of fish and edamame. What
does the slope of this frontier indicate?
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