Question: 2. (20 points} Consider two countries: Indonesia and Mauritius, and two goods: palm oil and t~shirts. In Mauritius, a. gallon of oil costs 6 labor

2. (20 points} Consider two countries: Indonesia and Mauritius, and two goods: palm oil and t~shirts. In Mauritius, a. gallon of oil costs 6 labor hours to produce} while a t-shirt costs 2 labor hours. In Indonesia1 a. gallon of oil costs 2 labor hours to produce, while a t-shirt costs 1 labor hour. (a) (5 points} Does any country have an absolute advantage? Why or why not? (1)) (10 points) Which country has a comparative advantage in each good? What will each country export / import? Justify your answer by computing the relative price of each good in each country. (c) (5 points} Choose an international relative price of a gallon of oil in terms of t-shirts for which it makes sense for both countries to trade. Show how each country can save on hours of work by trading with each other
Step by Step Solution
There are 3 Steps involved in it
Get step-by-step solutions from verified subject matter experts
