Consider a Ricardian world where if all workers are employed, Country A can produce 50 units of good X, but Country B can produce 100 units of good X. On the other hand, if all workers are employed, Country A can produce 100 units of good Y and Country B can produce 50 units of good Y. We can say that:
Show work and explain why:
a. Country B has an absolute advantage in the production of good Y.
b. Country B has a comparative advantage in the production of good Y.
c. If the international terms of trade is P (price of X in terms of Y) = 2.5, it may be acceptable to country B, but it will not be acceptable to country A.
d. If (price of X in terms of Y) = 1/3 it will be acceptable to country B, but it will not be acceptable to country A.
e. all of the above are true.
Consider a Ricardian world where if all workers are employed, Country A can produce 50 units of good X, but Country B can produce 100 units of good X. On the other hand, if all workers are employed, Country A can produce 100 units of good Y and Country B can produce 50 units of good Y. We can say that:
Show work and explain why:
a. Country B has an absolute advantage in the production of good Y.
b. Country B has a comparative advantage in the production of good Y.
c. If the international terms of trade is P (price of X in terms of Y) = 2.5, it may be acceptable to country B, but it will not be acceptable to country A.
d. If (price of X in terms of Y) = 1/3 it will be acceptable to country B, but it will not be acceptable to country A.
e. all of the above are true.
