Question: Consider the Ricardian model. There are two countries A and B producing two products X and Y. Unit labor requirements are as follows: ax =

Consider the Ricardian model. There are

two countries A and B producing two products X and Y. Unit labor requirements are as follows:

ax = 2 h/kg

ay = 4 h/kg

bx = 6 h/kg

by = 2 h/kg

Labor supply in both countries is equal to 1000 h. T

The relative demand function is as follows: Px/Py = 4Qy/Qx

What will be the equilibrium relative prices, Px/Py, under free trade.

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