Suppose the following table shows the per unit labor requirements for country A and B for goods S (soybeans) and T (textiles).
Country A Country B
S 1/20 1/4
T 1/10 1/5
1) Relative price of good S in country A = Price of good S/ Price of good T
Relative price = (1/20) good S/(1/10) good T = (0.05)/(0.1)
Relative price = 0.5 S/ 1T
2) In autarky relative prices are equal to opportunity cost of production
Relative price of good T in country B = Price of good T/ Price of good S
Relative price = (1/5) good T /(1/4) good S
Relative price = 0.2 good T / 0.25 good S
Relative price = 2 good T/ 2.5 good S
Relative price in terms of good S = 2.5 good S/ 2 good T
3)
Upper and lower limits of trade
(Price of good S/ Price of good T) = (0.5/1,2.5/2)
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