3. 10 points. Suppose that Egypt and India can produce cloth and wheat. In Egypt, it takes 10 hours to make a unit of cloth and 8 hours to make a bushel of wheat. In India, it takes 24 hours for cloth and 15 hours for wheat. a. Which country has absolute advantage in wheat? In cloth? b. What is the opportunity cost of wheat (in units of cloth) in Egypt? In India? c. When these countries open to free trade, which country will export wheat? Which will export cloth? d. Is it possible for the wheat-exporting country to demand 2 yards of cloth for a bushel of its wheat? Explain. e. Suppose the unit labor requirement for cloth in India falls to 15 hours per yard. Would this productivity improvement in India impact the pattern of trade (i.e., who imports and exports what)?
