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Problem Set 3 - Cornell University Gregory Besharov...

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Cornell University Gregory Besharov Economics 3610: Problem Set 3 Due September 22, 2008 1. True/False/Explain. For each of the following statements, say whether the statement is true or false and explain your answer. Please limit your answer to two sentences. a. If a country has a comparative advantage in producing a good, it must also have an absolute advantage in producing that good. b. In the two-country, two-good Ricardian model, the constancy of the workers’ marginal products of labor implies that, in a trade equilibrium in which there are gains from trade, all of the workers in a country will be employed in one industry. c. In the Ricardian model, equilibrium wages are the same in both countries. d. In the Ricardian model, no workers become worse off with trade. e. In a trade equilibrium of the Ricardian model in which residents of a country consume both goods, the indifference curve has the same slope as the ratio of prices at their consumption bundle (i.e, the point representing their consumption).
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