a. Using the Price=ATC equations, find the prices of wine and cloth in Portugal and England, given wages and.
b. Find the price ratio for each country.
c. What is the rate of exchange between wine and cloth for each country?
d. Show that an arbitrageur can make a profit exporting wine to England. (Hint: start with one bolt of cloth in Portugal.)
e. Show that an arbitrageur can make a profit exporting cloth to Portugal. (Hint: start with one barrel of wine in England.)
1. Which country has a comparative advantage in wine?
2. Which country has a comparative advantage in cloth?
Unit Labor Input RequirementsWineClothPortugal1 hour/bbl3 hours/boltEngland9 hours/bbl3 hours/bolt