Question: Comparative Advantage :

1. What are the assumptions of the Ricardian model of comparative advantage?
2. Assuming the unit labor requirement (L/Q) for each product in each country below, calculate the opportunity cost of each good in each country.
3. Which country has absolute advantage?
4. Which country has comparative advantage in Software__________? In Electronics________?

   L/Q for each Product	China	India
   Software	3	6
   Electronics hardware	2	3
   Total Labor	180	120

   Op Cost for each Product	China	India
   Software
   Electronics hardware

5. Graph the production possibilities frontier in each country.
6. Graph the world relative supply curve.
7. At what trade ratio can both countries gain from trade?
8. Illustrate graphically the gains from trade on each country’s production possibilities frontier.

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