Consider a Ricardian framework with two countries, A and B, and two products, G1 and G2. The following table shows the labour requirement (in hours) for the production of G1 and G2 in both countries. G1 G2Country A 5 4Country B 3 3Solve the real wage, in terms of G2, for workers in both country A and country B at the trade equilibrium. Group of answer choicesA: between 1/5 and 1/4. B: 1/3.A: 1/4. B: between 1/3 and 5/12.A: 1/4. B: 1/3.A: between 1/3 and 1. B: between 1/3 and 5/12.
Question
Consider a Ricardian framework with two countries, A and B, and two products, G1 and G2. The following table shows the labour requirement (in hours) for the production of G1 and G2 in both countries. G1 G2Country A 5 4Country B 3 3Solve the real wage, in terms of G2, for workers in both country A and country B at the trade equilibrium. Group of answer choicesA: between 1/5 and 1/4. B: 1/3.A: 1/4. B: between 1/3 and 5/12.A: 1/4. B: 1/3.A: between 1/3 and 1. B: between 1/3 and 5/12.
Solution
In a Ricardian framework, the real wage is the amount of goods a worker can consume per hour of work. It is determined by the productivity of labor in producing the good.
In this case, we are asked to solve the real wage in terms of G2.
For Country A, the labor requirement for producing G2 is 4 hours. This means that in one hour, a worker in Country A can produce 1/4 of G2. So, the real wage in Country A, in terms of G2, is 1/4.
For Country B, the labor requirement for producing G2 is 3 hours. This means that in one hour, a worker in Country B can produce 1/3 of G2. So, the real wage in Country B, in terms of G2, is 1/3.
Therefore, the correct answer is "A: 1/4. B: 1/3."
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