| Concept Question 4.3 | Question Help |
This exercise applies the basic Ricardian model of one factor and two goods. The table below contains the output per hour worked in Foreign and Home for each of two goods.
| Cheese | OliveOil | |
| Home | qC?=1poundper hour | qO?=3gallons per hour |
| Foreign | q*C?=5pounds per hour | q*O?=4gallons per hour |
?where:
| qC | ?= | units ofcheeseproduced in Home by one hour of? labor; |
| qO | ?= | units ofoliveoilproduced in Home by one hour of? labor; |
| q*C | ?= | units ofcheeseproduced in Foreign by one hour of? labor; |
| q*O | ?= | units ofoliveoilproduced in Foreign by one hour of? labor; |
| PCW | ?= | the world price ofcheese?(the trade? price); |
| POW | ?= | the world price ofoliveoil?(the trade? price). |
Both Home and Foreign will gain from trade if the world price ofoliveoil?(POW?)lies between two limits as? follows:nothingpoundsgallon>POW>nothingpoundsgallon.?(Round each response to two decimal? places.)
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