HW # 4: TESTING THE CLASSICAL MODEL(made up by me based on Chapter 5)

Two countries: Spain and Greece producing olives

SpainGreece

Output: 150 unitsOutput:80 units

Labor:30 workersLabor:40 workers

Wages:$4Wages:$2

Exports: $100Exports: $50

A real word comparative advantage for Spain over Greece in olives is measured by a ratio of Spanish exports of olives to Greek exports that exceeds one. Calculate this ratio and consider it the real world.

Determine the comparative advantage according to the classical model. Is the classical model's prediction of comparative advantage consistent with the comparative advantage in the real world given by the above example? Hint: Calculate relative productivity and relative wage.