Question $31$

$12p$

Part II$.$ Short Answer

Ricardian Model

Given the following Classical$-$type table showing the number of days of labor input required to obtain one unit of output of each of the two commodities in each of the two countries:

Labor Requirement Table for US and UK

$\backslash$table$[[,$bicycles,computers$],[$United States,$4$ days,$3$ days$],[$United Kingdom,$5$ days,$6$ days$]]$

$.$ has a comparative advantage in computers $$ has a comparative advantage in bicycles.

$.$ United States should export $$ to United Kingdom, and impor $$ from United Kingdom.

$.$ U$.$S$.$ and U$.$K $$ trade goods at "exchange rate' of $1$ bicycle for $1$ computer in international trade.

$$ benefits more from the international trade when the terms of trade is at $1$ bicycle $=1$ computer.