Given the following Ricardo-type table showing the amount of labor input required to produce one unit of output of each of the two goods in each of the two countries:
$\begin{array} { l l l }
&\underline{ \text { Wheat} } &\underline{ \text { Clothing} } \
\text { United Kingdom } & 6 \text { days } & 5 \text { days } \
\text { United States } & 4 \text { days } & 3 \text { days }
\end{array}$
Suppose that the U.S. wage rate is $60 per day and that the exchange rate is $2 = £1 (or £0.5 = $1). In this situation, the lower limit for the U.K. wage rate in order to have two-way trade would be __________ per day.
A) £18
B) £20
C) £45
D) £50

Question

Given the following Ricardo-type table showing the amount of labor input required to produce one unit of output of each of the two goods in each of the two countries:
$\begin{array} { l l l } 
&\underline{ \text { Wheat} } &\underline{ \text { Clothing} } \
\text { United Kingdom } & 6 \text { days } & 5 \text { days } \
\text { United States } & 4 \text { days } & 3 \text { days }
\end{array}$
Suppose that the U.S. wage rate is $60 per day and that the exchange rate is $2 = £1 (or £0.5 = $1). In this situation, the lower limit for the U.K. wage rate in order to have two-way trade would be __________ per day.
A) £18
B) £20
C) £45
D) £50

Quizplus · Accepted Answer

The correct answer is A.The lower limit for the U.K. wage rate in order to have two-way trade would be £18 per day. This is because the U.S. wage rate is $60 per day, and the exchange rate is $2 = £1. Therefore, the U.K. wage rate must be less than £30 per day in order for the U.K. to have a comparative advantage in producing wheat.

Given the Following Ricardo-Type Table Showing the Amount of Labor