Two countries: Greece and Italy producing the olives
Italy Greece
Labor : 30 workers Labor: 40 workers
Output: 150 units Output: 80 units
Exports: $100 Exports: $50
Wages: $5 Wages: $2
1. A real word comparative advantage for Italy over Greece in olives is measured by a ratio of Italian exports of olives to Greek exports that exceeds one. Determine this ratio and consider it the real world.
2. Calculate the comparative advantage according to the classical model. Is the classical model's prediction of comparative advantage consistent with comparative advantage in real world given by above example? Hint: Determine the relative productivity and the relative wage.