Relative Home Productivity Advantage aLilaLi Good Cars Toys

Relative Home Productivity Advantage (aLilaLi Good Cars Toys Shoes DVDs ron 0.5 Suppose we know that Home produces cars, toys, and shoes while Foreign produces shoes, DVDs, and iron. Given the data in the table above, it can be ascertained that the relative wage (w) is (Enter your response as an integer.)

Solution

Relative wage = $2

Reason: Only when relative wage will be $2, Home will find it beneficial to produce cars, toys and shoes as their home productivity advantage is equal to / more than 2.

A country only produces a good if its home country advantage is greater than or equal to relative wage.