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How much does each country export and import

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The table on the left below shows labor endowments of two countries, Estonia and Venia, and their unit labor requirements for producing two goods, stuff and nonsense. The table on the right shows the quantities of these two goods that each produces in autarky, and below that has cells to record what they might consume with free trade.

- Stonia Venia
Labor 300 600
Unit Labor Requirements
Stuff 2 4
Nonsense 1 5

Stonia Venia
Autarky Consumption
Stuff 90 40
Nonsense 120 88
Free Trade Consumption
Stuff 100 50
Nonsense 200 100

A. Fill in these empty cells, assuming that each country specializes completely in (that is, uses all of its labor to produce only) the good in which it has a comparative advantage. Assume that with trade Estonia is consumes exactly 2/3 of the two countries' combined output of each good.

B. How much does each country export and import of each good in the free trade situation? Is there evidence here that the countries have gained from trade?

C. What is your final analysis of this case study without trade (Autarky) and with trade (Free trade)?

Reference no: EM132795093

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