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Question: consider the following ricardian model mpl labor supply pens pencils...

Question details

Consider the following Ricardian model.

MPL                           Labor Supply

Pens           Pencils

       France         1/10              1/15                     90

       Germany     1/12              1/20                     120

Answer the following questions and show your steps. For the T/F questions, please explain why they are T/F.

1. Draw the PPF for France. Label your picture, and calculate the slope of the PPF, (4 points)

2. France has the absolute advantage in both goods.

3. France has the comparative advantage in pens.

4. If the labor supply increases in France, France is more likely to have a comparative advantage in pencils since the production of pencils requires more labor.

5. In moving from closed-economy to free trade, France produces fewer pens.

6. Under free trade, the relative price of pens to pencils (PpensT/PpencilsT) cannot exceed 2/3.

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