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What is the opportunity cost of cloth in foreign

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Reference no: EM133083910

Consider a world that consists of two countries, Domestic and Foreign, in a Ricardian model setting. Suppose Domestic has L¯D = 100 workers and Foreign has L¯ F = 20 workers. The output that one worker can produce in each country in terms of each good is given in the following table:

 

Cloth

Widgets 

Domestic

10

20

Foreign

60

30

1.1 What is the opportunity cost of cloth in Foreign in terms of widgets?

1.2 Which of the following statements is true? 

A Home has a comparative advantage in widgets 

B Foreign has a comparative advantage in widgets 

C Home has a comparative advantage in widgets and cloth 

D Neither country has a comparative advantage in widgets 

1.3 What is the total amount of cloth that will be produced in the free-trade equilibrium? 

1.4 What is the total number of widgets that will be produced in the free-trade equilibrium? 

1.5 All else equal, if Domestic workers become twice as productive, Domestic should: 

A Sell cloth to Foreign and buy widgets from Foreign 

B Sell widgets to Foreign and buy cloth from Foreign 

C Sell cloth and widgets to Foreign 

D Buy cloth and widgets from Foreign 

E Stop trading with Foreig

Reference no: EM133083910

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