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International equilibrium on a relative demand-supply graph

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Consider a Ricardian world of 2-countries (U.S. and U.K.), each capable of producing two goods: mini-vans and steel. Suppose the U.S. has 240 hours of labor. The unit labor requirement, in the U.S., for the production of mini-vans is 6 hours and for the production of steel is 4 hours. The U.K. has 160 hours of labor. The unit labor requirement, in the U.K., for the production of mini-vans is 10 hours and for the production of steel is 2 hours. World relative demand takes the following form:

(Quantity demanded of mini-vans / Quantity demanded of steel) = 1⁄4 +(Price of steel / Price of mini-vans)

Identify the international equilibrium on a relative demand-supply graph (drawn to scale). Assuming free and frictionless trade, determine the relative price, pattern of production, and pattern of trade in this Ricardian world. Explain your answer using the relative demand-supply graph.

Reference no: EM13846457

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