2. Consider the production of two goods (wine and cloth) in
two countries (England and Portugal). The time requirements to produce one
bottle of wine and one yard of cloth by workers in each country are given in
the table:

England Portugal

Time required to produce one bottle of wine 4 hours 1
hour

Time required to produce one yard of cloth 2 hours 1
hour

A. Which
country has the absolute advantage in the production of wine??Which
country has the absolute advantage in the production of cloth? Illustrate and
explain.

B. Which
country has the comparative advantage in the production of wine? Which country
has the comparative advantage in the production of cloth? Illustrate and
explain.

C. Which
good or goods should England export to Portugal? Which good or goods should
Portugal export to England? Explain.

D. In terms
of the price of wine relative to the price of cloth, what range of prices will
make both countries better off with specialization and trade? Illustrate and
explain.

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