Reference no: EM133203245

Problem:

You are given the information of a country Xanadu and the rest of the world. You make several Ricardian assumptions: These are the only two commodities, there are constant ratios of input to output whatever the level of output of cars and PC, and competition prevails in all markets.

                  Inputs per Unit                                                  Inputs per Unit

                  Of cars Output                                                   of PC Output

 Xanadu                          100                                                        150

 Rest of the world           70                                                          70

a. Does X have an absolute advantage in producing cars? PC?

b. Does ROW have a comparative advantage in producing cars? PC?

c. If no international trade were allowed, what price ratio would prevail between cars and PC within X?

d. If free international trade is opened up, what are the limits for the equilibrium international price ratio? What product will X export? Import?