<p> Absolute v. Comparative Advantage: an exercise for practice and reflection Due: ______Here is the worksheet: Solutions are typed in hidden text. To see the solutions, choose these commands from the pull-down menus: Tools  Options  View (a tab show by the dialog box)  check the box next to Hidden Text.</p><p>Home Foreign QS =L/aLS Q*S =L*/a*LS a*LS/aLS</p><p>Labor (hr / year) L=8000 L*=8000 QT =L/aLT Q*T =L*/a*LT a*LT/aLT Soybeans (hr / bu. S) aLS = 8 a*LS = 4 Textiles (hr / yards T) aLT = 4 a*LT = 2</p><p> aLS/aLT (yd T/bu S)</p><p> aLT/aLS (bu S/yd T) 1. Use the Ricardian model of international trade to answer the following questions. The table above shows the number of hours of labor necessary to produce one unit of each good: a. Which country has absolute advantage in which good and why?</p><p> b. Which country has comparative advantage in which good and why? </p><p>Home Foreign QS =L/aLS Q*S =L*/a*LS a*LS/aLS</p><p>Labor (hr / year) L=16000 L*=8000 QT =L/aLT Q*T =L*/a*LT a*LT/aLT Soybeans (hr / bu. S) aLS = 8 a*LS = 4 Textiles (hr / yards T) aLT = 8 a*LT = 2</p><p> aLS/aLT (yd T/bu S)</p><p> aLT/aLS (bu S/yd T) 2. Use the Ricardian model of international trade to answer the following questions. The table above shows the number of hours of labor necessary to produce one unit of each good:</p><p> a. Which country has absolute advantage in which good and why?</p><p> b. What is the autarky relative price of S in Home? Explain why. Graph Home’s RS of S in autarky, and sketch an example RD curve.</p><p> c. What is the autarky relative price of S in Foreign? Use a numerical example to explain why. Graph Foreign’s RS of S in autarky, and sketch an example RD curve. Absolute v. Comparative Advantage: an exercise for practice and reflection Due: ______d. Which country has comparative advantage in which good and why? </p><p> e. Is an absolute advantage either a necessary condition or a sufficient condition to guarantee a country a comparative advantage in a good? Explain.</p><p> f. Pick a value for the relative price of S, PS/PT, in the middle of the range of its possible values. How will Home's wage rate compare to the wage rate in Foreign? </p><p> g. Draw a relative supply and relative demand diagram to illustrate your international trade equilibrium. </p><p> h. Using the value for (PS/PT) that you chose above, graph a possible international trade equilibrium showing the PPF and CPF for each country. </p><p>ALGERIA BOTSWANA</p><p>4500 7000</p><p>4000 6000</p><p>3500 5000 3000 ) ) r r a a e e 4000 y y</p><p>2500 / / s s k k c c e e p p (</p><p>( 2000</p><p>3000 A A E E T T 1500 2000</p><p>1000</p><p>1000 500</p><p>0 0 0 200 400 600 800 1000 1200 1400 0 500 1000 1500 2000 2500 Shoes (pairs/ye ar) Shoes (pairs/year)</p>