About the absolute advantage between the two countries

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In 1990, the ratio of Japanese to US labor productivity in the steel and consumer electronics industries were estimated to approximately 1.4 and 1.12. We will assume that (a) these are the only two industries and labor is the only factor of production; (b) both industries are characterized by perfect competition, (c) there are no trade restrictions, and (d) that both countries specialize.

a. What country has the comparative advantage in producing steel and what country has the comparative advantage in producing electronics? What can you say about the absolute advantage between the two countries?

b. Based on this info what can you say about the ratio of real-wages (measured in terms of steel and electronics) between Japanese and US workers in 1990?

Reference no: EM13853970

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