Macroeconomics 13th Edition by William Baumol ,Alan Blinder

Exercise 2

The following table describes the number of yards of cloth and barrels of wine that can be produced with a week's worth of labor in England and Portugal. Assume that no other inputs are needed.

a. If there is no trade, what is the price of wine in terms of cloth in England
b. If there is no trade, what is the price of wine in terms of cloth in Portugal
c. Suppose each country has 1 million weeks of labor available per year. Draw the production possibilities frontier for each country.
d. Which country has an absolute advantage in the production of which good(s) Which country has a comparative advantage in the production of which good(s)
e. If the countries start trading with each other, which country will specialize and export which good
f. What can be said about the price at which trade will take place