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
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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?
Transcribed Image Text: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?
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