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82. Consider a Classical world with two countries labelled A and B, each of which is able to produce two goods, textile and steel. Country A produces textile with a labor coefcient of 2 and steel with a labor coefficient of 4. Country B produces these two goods with labor coefcients of 10 and 5, respectively. Countries A and B are endowed with 2000 units and 5000 units of labor, respectively. Both countries always prefer to consume equal quantities of both goods. (a) Determine the autarkic equilibrium of each of the economies before trade, and derive the autarlcic price ratio (relative price of textile in terms of steel), production and consumption quantities. What is the Labor Theory of Value and how would you use the present model to illustrade the theory? (b) Determine the absolute and comparative advantages of the economies. (c) State Adam Smith's Theorem of Absolute Advantage. Explain why this theorem is not applicable in the present case. (d) State David Ricardo's Theorem of Comparative Advantage. Suppose now that free trade is allowed between the economies, with no transport cost. What would each economy produce, according to Ricardo's Theorem? Suppose that the free- trade price ratio is equal to one. Determine the consumption quantities and the export quantities of the countries. What are the labor value of consumption under free trade of the countries? Do the countries gain from trade? Explain. (e) Explain why Ricardo Theorem is more general than Smith's Theorem. 0