Suppose two countries, China and India, produce two goods: rice (R) and skinny jeans (S). Assume that land is specific to rice, while capital is specific to production of skinny jeans, and labor is free to move between the two industries. Assume that when China and India engage in free trade, the relative price of rice increases in China and the relative price of skinny jeans increases in India. 1. Explain what these changes in prices means about the comparative advantage of the two countries. When China and India open up to trade, what good will each country export?

Suppose two countries, China and India, produce two goods: rice (R) and skinny jeans (S). Assume that land is specific to rice, while capital is specific to production of skinny jeans, and labor is free to move between the two industries. Assume that when China and India engage in free trade, the relative price of rice increases in China and the relative price of skinny jeans increases in India. 1. Explain what these changes in prices means about the comparative advantage of the two countries. When China and India open up to trade, what good will each country export?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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a) Determine which country has a comparative advantage in each good . b) If Country A and Country B each have 100 units of labour , calculate the maximum production of each good for both countries .
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