Draw the opportunity set for each country

Reference no: EM131142173

David Ricardo illustrated the principle of comparative advantage in terms of the trade between England and Portugal in wine (port) and wool. Suppose in England it takes 120 laborers to produce a certainty quantity of wine, while in Portugal it takes only 80 laborers to produce the same quantity. Similarly, in England it takes 100 laborers to produce a certain quantity of wool, while in Portugal it takes only 90. Draw the opportunity set for each country, assuming each has 72,000 laborers. Assume each country commits half its labor to each product in the absence of trade, and designate that point in your graph. Now describe a new production plan, with trade, that can benefit both countries.

Reference no: EM131142173

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