1. Assume two countries the US and UK, two goods corn and textiles.

Further assume that labor is the only relevant input in production

and in the pre-trade situation in each country in the production of one
unit of each product. Accordingly, UK requires 9 and 18 units of
labour; while the US requires 6 and 3 units labour to produce one unit
of textiles and Corn respectively. Then
a. Which country has an absolute advantage in which product?
UK has absolute advantage in both products.

b. Indicate which country has a comparative advantage in production of

a certain good.
UK US UK US
Corn 18 3 6 times efficient 6 times less efficient
Textile 9 6 1.5 times efficient 1.5 times less efficient
c. What is the maximum output each country can produce of the good it
has a comparative advantage in? What is the gain from this
specialization?
d. Describe the pattern of trade that is possible if both countries enter
into a trade relationship.
The pattern of trade is that US shall export Textile and import corn, and UK shall
export corn and import textile.
e. Assume now, that the labor input requirements are 12 for textiles
and 6 for corn in the UK. Is it possible to define a comparative
advantage or say something about the trade pattern?