Ch. 4 Problems

# Ch. 4 Problems - Chapter 4 Problems reviewed in class 3 and...

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Chapter 4 Problems reviewed in class: 3 and 5

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Problem 3 • Suppose costs of production depends only on labor costs and to produce a unit of each commodity (A, B, C) in each country (H, F) takes the number of labor-hours shown ABC H 1 01 0 F 357
Problem 3 (contd.) a. In which commodity does H possess the greatest absolute/comparative advantage? b. If wage rate in F is \$1 per labor-hour and a free-trade equilibrium is reached, what is the most that the wage rate in H can be? c. If wage rate in F is \$1 per labor-hour, what would a possible wage rate in H be so that it produces only one commodity? Which commodity would it be?

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Problem 3 Answer a.The home country, H, has the greatest comparative advantage in commodity C. b.The home wage rate can be at most 0.7. c.The home country, H, can produce only one commodity, C, for any wage rate greater than 0.5.
Problem 5 Production in H requires 2 labor-hours per unit of food and 1 labor-hour per unit of clothing.

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## This document was uploaded on 02/10/2012.

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Ch. 4 Problems - Chapter 4 Problems reviewed in class 3 and...

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