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Opportunity cost of one unit of cloth:
U.S. one unit of cloth needs 4 hours, which can produce 4.0/2.0 = 2 unit of wheat; so, the opportunity cost of cloth is 2 units of wheat;
the rest of the world: 1/2.5 = 0.40 units of wheat. So, the U.S. has the comparative advantage in producing Wheat, while the rest of the world have the comparative advantage in Cloth, since the rest of the world has lower opportunity cost of producing cloth.
To trade, U.S. will specialize in producing Wheat, while the rest of the world produce Cloth.
The equilibrium international price will be range: the key here is the wage between two industries are equal
For example, in U.S., let the price of cloth be x, the price of wheat be y, then:
the wage for workers in cloth industry: x * 0.25 yard = y * 0.5 bushel , we have: x / y = 2 bushel / yard, U.S. focus on wheat when x * 0.25 < y * 0.5;
The rest of the world: x * 1 yard = y * 0.4 bushel, x / y = 0.4 bushel / yard bushel/year , the rest of the world focus on cloth when x * 1 > y * 0.4
So, the international price of cloth is 0.4 < price of cloth in terms of wheat < 2.0.
Similarly, we have: 0.25 yard / bushel < price of wheat in terms of cloth < 2.5 yard / bushel
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