1. A simple Ricardian model Consider a simple economy consisting of two countries, England and France. England has 25 workers and France has 75 workers. England can produce 4 units of grain and 2 units of cloth with each unit of labor. France can produce 1 unit of grain and 1 unit of cloth with each unit of labor. Wages per unit of labor are the same in both countries. a. Which country has the absolute advantage in each good? Which country has the comparative advantage in each good? Explain your answers. b. Construct the production possibilities frontier for each country (put grain on the x-axis and cloth on the y-axis). What is its slope? c. Assume that consumers have utility U = grain/2 . cloth/2. How much does each country produce and consume of each good in autarky? Show the consumption graphically by drawing the indifference curves into your two diagrams.

1. A simple Ricardian model Consider a simple economy consisting of two countries, England and France. England has 25 workers and France has 75 workers. England can produce 4 units of grain and 2 units of cloth with each unit of labor. France can produce 1 unit of grain and 1 unit of cloth with each unit of labor. Wages per unit of labor are the same in both countries. a. Which country has the absolute advantage in each good? Which country has the comparative advantage in each good? Explain your answers. b. Construct the production possibilities frontier for each country (put grain on the x-axis and cloth on the y-axis). What is its slope? c. Assume that consumers have utility U = grain/2 . cloth/2. How much does each country produce and consume of each good in autarky? Show the consumption graphically by drawing the indifference curves into your two diagrams.

Essentials of Economics (MindTap Course List)

8th Edition

ISBN:9781337091992

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter17: Production And Growth

Section: Chapter Questions

Problem 3PA

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