David Ricardo, the British political economist, used the example of two commodities—wine and cloth—produced by England and Portugal to explain trade. The following table shows the number of labor hours it would take England and Portugal to produce one unit each of wine and cloth: (see table attatched) Portugal can produce both wine and cloth using fewer labor hours than England uses. A group of mercantilists (who believe that nations build their wealth by exporting more than they import) suggest that Portugal has nothing to gain from trading with England. Would you agree? Explain your answer.

David Ricardo, the British political economist, used the example of two commodities—wine and cloth—produced by England and Portugal to explain trade. The following table shows the number of labor hours it would take England and Portugal to produce one unit each of wine and cloth: (see table attatched) Portugal can produce both wine and cloth using fewer labor hours than England uses. A group of mercantilists (who believe that nations build their wealth by exporting more than they import) suggest that Portugal has nothing to gain from trading with England. Would you agree? Explain your answer.

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter28: International Trade

Section: Chapter Questions

Problem 2P

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The following table describes the number of yards of cloth and barrels of wine that can be produced with a week’s worth of labor in England and Portugal. Assume that no other inputs are needed. In England In Portugal Cloth 8 yards 12 yards Wine 2 barrels 6 barrels d.Which country has an absolute advantage in the production of which good(s)? Which country has a comparative advantage in the production of which good(s)? e.If the countries start trading with each other, which country will specialize and export which good? f.What can be said about the price at which trade will take place?
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