International Economics 8th Edition by Dennis Appleyard, Alfred Field

Exercise 7

You are given the following Classical-type table showing the number of days of labor input required to obtain 1 unit of output of each of the five commodities in each of the two countries:
( a ) Assume that the wage rate in the United Kingdom (W UK) is £8/day, the wage rate in the United States (W US) is $20/day, and the exchange rate (e) is $2/£1. With this information, determine the goods that will be U.K. exports and the goods that will be U.S. exports.
( b ) Keeping W US at $20/day and keeping the exchange rate at $2/£1, calculate the upper and lower limits (in pounds per day) to the U.K. wage rate that are consistent with two-way trade between the countries.
( c ) With W UK at £8/day and W US at $20/day, calculate the upper and lower limits (in $/£) to the exchange rate that are consistent with two-way trade between the countries.