Question

Good Relative Home Productivity Advantage (ali Tali) * Cars 8 5 Toys Shoes 4 DVDs 1 Iron 0.2 Suppose we know that Home produces cars and toys while Foreign produces toys, shoes, DVDs, and iron. Given the data in the table above, it can be ascertained that the relative wage (w/w*) is (Enter your response as an integer.)

Answer 1

We know that if

a*Li / aLi > w/w*, so the good must produce in Home country and if

a*Li / aLi < w/w*, so good must produce in Foreign country.

As car and toys are produced in home and Shoes, DVds and iron are produce by foreign.

It means that w/w* = 4 ( as if a*Li / aLi > 4, the product is made in home and if it is equal or less than 4, goods are produce in foreign).

Ans is 4