Question: This exercise applies the basic Ricardian model of one factor and two goods. The table below contains the unit labor requirements in Foreign and

This exercise applies the basic Ricardian model of one factor and two

This exercise applies the basic Ricardian model of one factor and two goods. The table below contains the unit labor requirements in Foreign and Home for each of two goods. Candy aLc = 6 hours per pound where: Home Foreign alc alw * aLc = 2 hours per pound * aLC alw Whiskey = 5 hours per gallon = number of labor hours needed to produce a unit of candy in Home; = number of labor hours needed to produce a unit of whiskey in Home; = number of labor hours needed to produce a unit of candy in Foreign; * = number of labor hours needed to produce a unit of whiskey in Foreign; aLW Pc = the absolute or money price of candy on world markets; Pw = the absolute or money price of whiskey on world markets. * alw = 6 hours per gallon As long as the world equilibrium relative price (PC/Pw) lies between 0.33 and 1.2 gallons, the two countries will specialize, with all Foreign workers producing

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