Answer parts (a) through (c) using the information on unit labor requirements pr

Question

Answer parts (a) through (c) using the information on unit labor requirements provided in the following table. Home Foreign V5(az) Butter (labor-hours/1b) Cloth (labor-hours/yard) V3(aic) LC In which commodity does Home have an absolute advantage? In which commodity does Foreign have an absolute advantage? Why? a. b. How much will Home gain if it trades 5 units of butter for 3 units of cloth? How much would Foreign gain from the same trade? Why? How much will Home gain if it trades 5 units of butter for 6 units of cloth? How much would Foreign gain from the same trade? c.

Explanation / Answer

Ans

Home has in butter because it requires less labour. Foreign has in cloth because it requires less labour in cloth production than home

B it will gain 2 units of cloth because domestically it can only 1 cloth for 5 units of butter. The foreign will similarly gain 2 units of butter

C it will gain 5 units of cloth. Foreign will gain 3 units of butter

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