1- Compare the absolute and comparative advantages for two countries. Suppose there are two countries A and B producing two products X and Y. The unit labor requirement for two countries and two products are:

a _X^A= 1; a _Y^A= 5; a _X^B= 10; a _Y^B=10

• Which country has absolute advantage in producing X ? Why?

• Which country has comparative advantage in producing X ? Why?

• Suppose there are L_A=100 identical workers inhabiting in the Country A, define the production possibility set and the production possibility frontier (PPF) for Country A

.2- Look at the country A only, suppose each worker has preferences U defined by:

U_A = ₁ ln (C _X^A) +₂ ln (C _Y^A),

where C _X^A is the consumption level for product X and C _Y^A is the consumption level for product Y.

• Find the Autarky equilibrium for economy A.

• And then describe the equilibrium for economy A.