Suppose that in the United States 4 man-hours are required to produce each unit of clothing
and each unit of food. In Canada, 1 man-hour is required for each unit of clothing and 2
man-hours are required for a unit of food.
1. Which country has an absolute advantage in each good?
2. Which country has comparative advantage in each good?
3. Assuming that each country has 40 man-hours of labor available for production, draw
the production possibilities frontiers for each country. (Put food on the vertical axis.)
What do the slopes of these frontiers indicate?
4. Draw the world production possibilities frontier (defined as the maximum amount of
goods that can be produced worldwide for a fixed amount of resources). What does its
slope indicate?
5. If consumers in both countries have identical Leontief preferences, so that goods are
perfect complements and individuals always consume clothing and food in the fixed
proportion of one-to-one, what is the trade pattern? (hint: when goods are always
consumed in fixed proportions, the relative demand will be fixed as well). Derive the
exact value of each country’s exports and imports.
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6. If the labor force of the United States increases by a factor of 20, will anything happen
to the pattern of trade? You do not need to provide numerical details. Will the gains
of trade for the U. S. be higher or lower than when the two countries have the same
labor force?