- Table 1 given below shows the number of labor hours required toproduce 1 bushel of wheat and 1 ton of iron in Russia and NorthKorea.
Table 1
Labor hours to make: | In North Korea | In Russia |
1 bushel of wheat | 4 | 1 |
1 ton of iron | 10 | 5 |
You make several Ricardianassumptions: these are the only two commodities, the productivityof labor is constant for each product no matter how much isproduced, and competition prevails in all markets.
- Compute the productivity of each country for each product.Which country has an absolute advantage at producing wheat? Whichcountry has an absolute advantage at producingiron? Â
- Compute the relative prices of each product in each countrywithout trade.   Which country has a comparativeadvantage at producing wheat? Which country has a comparativeadvantage at producing iron? Â
- According to the theory of comparative advantage, which countrywould export wheat? Which country would exportiron? Â
If Russia and North Korea are allowed to trade, between whatprices would the international relative price of iron be? Betweenwhat prices would the international relative price of wheatbe? Â
Please show work and step by step explanation. Thanks!
