Trade Problem Set 40 1-3

1. Consider a Ricardian model with two countries, England and Portugal,  producing two goods, wine and corn. The unit-labor requirements are given in the Table. Be sure to include units in your answers when appropriate.

	Wine	Corn
England	aLWEng = 5 hours per liter	aLCEng = 4 hours per kg
Portugal	aLWPort = 2 hours per liter	aLCPort = 2 hours per kg

 

A. What is labor productivity in wine production in Portugal?  … in England? 

 

B. Which country is better in an absolute sense in the production of wine?  Explain briefly.

 

C. What is labor productivity in corn production in Portugal?  … in England? 

 

D. Which country is better in an absolute sense in the production of corn?  Explain briefly.

 

E. How much more productive is Portugal in wine compared to England? 

 

F. How much more productive is Portugal in corn compared to England? 

 

G. In which good does Portugal have a comparative advantage?  Explain why using productivity comparisons.

 

H. Suppose the autarky terms of trade in Portugal is 1 kg per liter while in England it is 1.25 kg per liter. Explain the motivation for wine trade between the two countries immediately after free trade is allowed.  Which country will export wine? 

 

International Trade Theory and Policy - Chapter 40: Last Updated on 3/25/08