This exercise applies the basic Ricardian model of one factor and two goods. The table below contains the unit labor requirements in Foreign and Home for each of two goods. Candy Home aLC = = 6 hours per pound Foreign * aLC = = 2 hours per pound = Wine aLW 5 hours per gallon aLw= * a Lw = 6 hours per gallon = number of labor hours needed to produce a unit of candy in Home; where: аLC aLW = number of labor hours needed to produce a unit of wine in Home; * = number of labor hours needed to produce a unit of candy in Foreign; * = number of labor hours needed to produce a unit of wine in Foreign; аLW Pc = the absolute or money price of candy on world markets; Pw = the absolute or money price of wine on world markets. As long as the world equilibrium relative price (PC/Pw) lies between 0.33 and 1.2 gallons, the two countries will specialize, with all Foreign workers producing In the post-trade equilibrium the wage of workers in Foreign relative to the wage of workers in Home will lie between OA. 0.83 and 3. OB. 0.33 and 3. OC. 1.2 and 0.83. OD. 2 and 5. candy wine kt
This exercise applies the basic Ricardian model of one factor and two goods. The table below contains the unit labor requirements in Foreign and Home for each of two goods. Candy Home aLC = = 6 hours per pound Foreign * aLC = = 2 hours per pound = Wine aLW 5 hours per gallon aLw= * a Lw = 6 hours per gallon = number of labor hours needed to produce a unit of candy in Home; where: аLC aLW = number of labor hours needed to produce a unit of wine in Home; * = number of labor hours needed to produce a unit of candy in Foreign; * = number of labor hours needed to produce a unit of wine in Foreign; аLW Pc = the absolute or money price of candy on world markets; Pw = the absolute or money price of wine on world markets. As long as the world equilibrium relative price (PC/Pw) lies between 0.33 and 1.2 gallons, the two countries will specialize, with all Foreign workers producing In the post-trade equilibrium the wage of workers in Foreign relative to the wage of workers in Home will lie between OA. 0.83 and 3. OB. 0.33 and 3. OC. 1.2 and 0.83. OD. 2 and 5. candy wine kt
Chapter9: Production Functions
Section: Chapter Questions
Problem 9.6P
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Transcribed Image Text:This exercise applies the basic Ricardian model of one factor and two goods. The table below contains the unit labor requirements in Foreign and Home for each of two
goods.
Candy
Home
aLC =
= 6 hours per pound
Foreign
*
aLC =
= 2 hours per pound
=
Wine
aLW 5 hours per gallon
aLw=
*
a Lw = 6 hours per gallon
= number of labor hours needed to produce a unit of candy in Home;
where:
аLC
aLW
= number of labor hours needed to produce a unit of wine in Home;
*
= number of labor hours needed to produce a unit of candy in Foreign;
*
= number of labor hours needed to produce a unit of wine in Foreign;
аLW
Pc
= the absolute or money price of candy on world markets;
Pw
= the absolute or money price of wine on world markets.
As long as the world equilibrium relative price (PC/Pw) lies between 0.33 and 1.2 gallons, the two countries will specialize, with all Foreign workers producing
In the post-trade equilibrium the wage of workers in Foreign relative to the wage of workers in Home will lie between
OA. 0.83 and 3.
OB. 0.33 and 3.
OC. 1.2 and 0.83.
OD. 2 and 5.
candy
wine
kt
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