In the Ricardian Model, suppose that Home has a comparative advantage in Cars and Foreign has a comparative advantage in Wheat
In the Ricardian Model, suppose that Home has a comparative advantage
in Cars and Foreign has a comparative advantage in Wheat. Suppose also that they have the same number of workers, and that the marginal product of labor in the Car industry is lower in Home than in Foreign. What can we deduce for two production possibility frontiers (PPF) if we plot them on the same graph (where we would plot production of wheat on the y-axis and cars on the x-axis)?
1.We can only conclude that Home’s PPF is steeper than Foreign’s PPF
2.Home’s PPF is below Foreign PPF
3.Home’s PPF is above Foreign’s PPF
4.Home’s PPF is crossing Foreign’s PPF
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