International Economics 8th Edition by Dennis Appleyard, Alfred Field

Exercise 1

In a Ricardian model, suppose that the United States can produce 1 unit of wheat in 3 days of labor time and 1 unit of clothing in 4 days of labor time. What is the autarky price ratio in the United States? If the world price ratio (terms of trade) is 1 wheat:1 clothing, which good will the United States export and which will it import? Why? Suppose that the world price ratio is 1 wheat:0.5 clothing. Which good will the United States export and which will it import? Why?