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Question: you are given the following information on unit labor requirements...

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You are given the following information on unit labor requirements in Pugelovia and the rest of the world (ROW):

            

aLin rice

aL in cloth

Pugelovia

0.75

1

ROW

0.5

0.5

You make the usual Ricardian assumptions. There are only two commodities, constant unit labor requirements and perfect competition in all markets.

a. Which country has the absolute advantage in rice?

b. Which country has the absolute advantage in cloth?

c. Which country has the comparative advantage in rice?

d. Which country has the comparative advantage in cloth?

e. What is Pugelovia’s relative price of rice (in terms of cloth) under autarky?

f. Between what values must the equilibrium free trade relative price of rice lie?

g. What product will Pugelovia export?

h. What product will ROW export?

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