1. Use the Table 1 to answer the four questions below.
Table 1
|
Good
|
Home Unit Labor Required (aLi )
|
Foreign Unit Labor Required (a*Li )
|
Relative Home Productivity Advantage (a*Li / aLi )
|
|
Apples
|
1
|
10
|
10
|
|
Bananas
|
5
|
40
|
8
|
|
Coconuts
|
3
|
12
|
4
|
|
Dates
|
6
|
12
|
2
|
|
Enchiladas
|
12
|
9
|
0.75
|
If Home wage (w) is three times Foreign wage (w*),
(1) What good or goods will Home specialize and export?
(2) What good or goods will Foreign specialize and export?
(3) What will Home import? What will Foreign import?
(4) Pick any one of Home's import and explain why trade is beneficial for Home. Be sure to incorporate the three-to-one wage ratio between the two countries in your explanation.
(5) Drawing from the offshoring and outsourcing readings, explain one important limitation of the Ricardian Model for these two countries.