I. Ricardo model of trade Consider that case of two Countries: (N)orth and (S)outh. There are...

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I. Ricardo model of trade Consider that case of two Countries: (N)orth and (S)outh. There are two commodities: (C)ars and (R)ice. Inputs to Produce 1 car: 1 hour of labor in N vs 4 hours of labor in S. Inputs to Produce 1 sack of rice: 1 hour of labor in N vs 2 hours of labor in S a) Which country is more efficient (absolute advantage) in making cars? In making rice? Explain why in words. b) Which country has a comparative advantage in making cars? In making rice? Explain why with a graph and in words. c) Draw the production possibilities frontier of both countries together (world PPF). d) What is the range of relative prices that could potentially be observed if production is at the kink of the world PPF? e) Provide an example of a utility function that would lead this world economy to only produce rice. I. Ricardo model of trade Consider that case of two Countries: (N)orth and (S)outh. There are two commodities: (C)ars and (R)ice. Inputs to Produce 1 car: 1 hour of labor in N vs 4 hours of labor in S. Inputs to Produce 1 sack of rice: 1 hour of labor in N vs 2 hours of labor in S a) Which country is more efficient (absolute advantage) in making cars? In making rice? Explain why in words. b) Which country has a comparative advantage in making cars? In making rice? Explain why with a graph and in words. c) Draw the production possibilities frontier of both countries together (world PPF). d) What is the range of relative prices that could potentially be observed if production is at the kink of the world PPF? e) Provide an example of a utility function that would lead this world economy to only produce rice.

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a Country N is more efficient in making cars as it requires fewer hours of labor to produce 1 car co... View the full answer