Consider a Ricardian world of two countries, Germany and Italy, capable of producing two goods, steel and shoes. The labour availability and labour requirements to produce one ton of steel and a pair of shoes respectively in Germany and Italy are given below :
| Country | Total Labour Available | Labour Needed to Produce: Pair of Shoes | Labour Needed to Produce: Ton of Steel |
|---|---|---|---|
| Germany | 160 | 10 | 5 |
| Italy | 60 | 15 | 3 |
Then the pre-trade relative prices are
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Theories of international trade has come up 151 times in 6 exams since 2006.
This question is on Specialisation and the gains from trade, part of Theories of international trade in International Economics.
How specialisation raises consumption possibilities, including complete and incomplete specialisation.
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Question from the JNU SIS 2014 paper. Solutions are TestStop's own. Not affiliated with or endorsed by any examination authority.