Suppose television production requires 20 units of labor and 4 units of land. Rice requires 1 unit of labor and 4 units of land.

1. If there is no trade, which good will be relatively cheaper in each country? If a free trade occurs, what will happen with relative prices of goods?
2. If a free trade occurs, What will happen with the factors prices? Does this happen in the real world? Explain why yes or why not.

Answer rating: 100% (QA)

Relative Prices and Trade Analyzing Television and Rice Relative Prices Under Autarky To determine which good is relatively cheaper in each country un... View the full answer