Question

1. Given the information in Table 1, in a two country and two-product Ricardian model, which of the following statements is (are) true? Table 1 Unit Labour Requirements T-shirt Brandy 4 hours 12 hours 6 hours 12 hours United States France A) The pretrade price ratio in France is 1 brandy - 2 T-shirts. B) The US pretrade price ratio is 1 brandy - 4 T-shirts. C) The US pretrade price ratio is 1 T-shirt = 1/3 brandy. D) The United States has a comparative advantage in T-shirts. 2. Given the information in Table 1, if the world equilibrium price of one T-shirt were 0.5 brandy, then A) both countries will benefit equally from trade with each other. B) France but not the United States will gain from trade. C) the United States but not France will gain from trade. D) neither the United States nor France will gain from trade. 3. Given the information in Table 2, according to the Ricardian model, if country A is assumed to be much larger compared to country B, then, other things equal, once trade occurs, the world terms of trade will be equal to a value of_ only will enjoy gains from trade. _and Table 2 Unit Labour Requirements Wine Cloth 12 hours 3 hours 9 hours 3 hours Country A Country B A) I wine 4 cloths; country A. B) I wine = 4 cloths; country B. C) I wine-3 cloths; country A. D) I wine = 3 cloths; country B. 4. Ir, in the above-described Ricardian model, there is a home product taste bias in country A, then A) country A must also enjoy a comparative advantage in Wine. B) country A may end up exporting Wine. C) country B may switch to having a comparative advantage in Cloth. D) none of the above.

Answer 1

As per HOMEWORKLIB RULES we are required to solve only 1st question. For the rest of the question post separately.

Solution- Let us assume that 1200 labor hours are available in both the countries. If resources are equally divided we obtain the output matrix.

(D) Any country would have comparative advantage when the opportunity cost of producing one product over another is less as compared to the other country.

Thus only option b is false, rest options a,c and d are true.