Consider a Ricardian model where both countries have perfect complement preferences over manufactures and services, Country 1 has and , Country 2 has and and . Which of the following is TRUE? With free trade:

Question

Consider a Ricardian model where both countries have perfect complement preferences over manufactures and services, Country 1 has  and , Country 2 has   and   and . Which of the following is TRUE? With free trade:

BlackTom AI · Accepted Answer

The question as provided has missing information in the answer options section, so it’s not possible to definitively evaluate which statement is true.

What we do know from the prompt is that we are considering a Ricardian model with perfect complement preferences over manufactures and services (Leontief-type preferences). In such a framework, under free trade, the pattern of specialization typically depends on comparative advantages in producing the fixed-proportions bundle of goods (manufactures and services) given each country’s unit labor requirements for those goods. However, the actual determination of which country specializes in which good requires the specific data on relative productivity or unit labor requirements for Country 1 and Country 2, which are represented in the prompt by blank spaces.

Option analysis with the available information:
- The stated option is: "Country 2 will specialise in manufactures." Without the corresponding productivity data (i.e., which good has the lower unit labor requirement in Country 2 relative to Country 1, and the relative proportions demanded by the perfect-complements preferences), we cannot assess whether this claim follows from the model’s logic. In Leontief-type setups, specialization hinges on the comparative advantage in the fixed bundle, and that hinges on concrete numbers that are missing here.

Why the missing data prevents a valid judgment:
- If Country 2 has a lower unit labor requirement for manufactures relative to Country 1, it would be a candidate for specializing in manufactures, all else equal. Conversely, if Country 2 is relatively less efficient in manufactures (or relatively more efficient in services within the fixed-proportions bundle), the true specialization could be reversed.
- The exact mix demanded by the perfect-complements preferences (how many units of manufactures per unit of services, or the fixed ratio) also affects which country should specialize in which good under free trade. With no numbers, either outcome could be supported depending on the data.

In summary, given the absence of the crucial productivity data and the fixed-proportion requirements, we cannot confirm that the statement "Country 2 will specialise in manufactures" is true. The correct evaluation would require plugging in the known unit labor requirements or production coefficients for both countries and both goods, then comparing opportunity costs within the Leontief (fixed-proportion) framework to determine the true pattern of specialization under free trade.

ECON10003_2025_SM1 Pre-Tutorial Quiz 9

Consider a Ricardian model where both countries have perfect complement preferences over manufactures and services, Country 1 has and , Country 2 has and and . Which of the following is TRUE? With free trade:

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