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. Use this information to answer the question that follows. Chocolate Wine Home ac = 4 hours per pound aLw = 5 hours per gallon Foreign ac = 2 hours per pound aLw = 4 hours per gallon where: a c = number of labor hours needed to produce a unit of chocolate in Home; a w = number of labor hours needed to produce a unit of wine in Home; = number of labor hours needed to produce a unit of chocolate in Foreign; a Lc = number of labor hours needed to produce a unit of wine in Foreign. a Lw Which of the following statements is true? O A. Foreign has the absolute advantage in both chocolate and wine production and the comparative advantage in chocolate production. O B. Home has the absolute advantage in both chocolate and wine production and the comparative advantage in chocolate production. OC. Home has the absolute and comparative advantage in wine production. O D. Foreign has the absolute advantage in both chocolate and wine production and the comparative advantage in wine production.
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. Use this information to answer the question that follows. Chocolate Wine Home ac = 4 hours per pound aLw = 5 hours per gallon Foreign ac = 2 hours per pound aLw = 4 hours per gallon where: a c = number of labor hours needed to produce a unit of chocolate in Home; a w = number of labor hours needed to produce a unit of wine in Home; = number of labor hours needed to produce a unit of chocolate in Foreign; a Lc = number of labor hours needed to produce a unit of wine in Foreign. a Lw Which of the following statements is true? O A. Foreign has the absolute advantage in both chocolate and wine production and the comparative advantage in chocolate production. O B. Home has the absolute advantage in both chocolate and wine production and the comparative advantage in chocolate production. OC. Home has the absolute and comparative advantage in wine production. O D. Foreign has the absolute advantage in both chocolate and wine production and the comparative advantage in wine production.
Macroeconomics: Principles and Policy (MindTap Course List)
13th Edition
ISBN:9781305280601
Author:William J. Baumol, Alan S. Blinder
Publisher:William J. Baumol, Alan S. Blinder
Chapter8: Aggregate Demand And The Powerful Consumer
Section8.A: National Income Accounting
Problem 2TY
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