Does either country have an absolute advantage

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Reference no: EM133629826

Consider the following data from two countries, called Green and Orange, from the Table below. Assume that individuals in both countries spend 50% of their income on good 1 and 50% of their income on good 2. Assume that good 2 is the numéraire, and that both goods are divisible (you can purchase fractions of either good). Green Orange Labor force 100 100 Number of good 1 one worker can produce 5 20 Number of good 2 one worker can produce 10 5

a) In autarky (no trade), what is the relative price of a good 1 (i.e., in terms of good 2) in the Green and Orange countries?

b) Does either country have an absolute advantage?

c) Does either country have a comparative advantage?

d) In autarky (no trade), how many units of good 1 and good 2 do individuals in the Green and Orange countries consume?

e) Under free trade (and assuming both countries completely specialize if they have a comparative advantage) how many units of good 1 and good 2 do individuals in the Green and Orange countries consume?

f) Compare consumption of individuals in the Green and Orange countries under free trade to what they would.

Reference no: EM133629826

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