Suppose in the United States, one worker can produce 10 tons of steel per day or 20 tons of chemicals per day. In the United Kingdom, one worker can produce 5 tons of steel per day or 15 tons of chemicals per day. The United States has 30 workers and the United Kingdom has 20 workers.
a) Which country has absolute advantage in what good?
b) Find the opportunity cost of both goods in both countries.
c) Which country has comparative advantage in what good?
d) Draw the PPF for the United States.
e) Suppose the international relative price of a ton of steel is 2.5. Draw the world price line.
f) Show that the United States is better off under trade compared to Autarky with the aid of indifference curves.
g) Show the amount the United States will export and import.