02. The Ricardian Model

Learning objectives

By the end of this chapter, you should be able to:

Define opportunity cost and comparative advantage.
Distinguish between absolute advantage and comparative advantage.
Write a labor constraint and derive a production possibility frontier.
Use unit labor requirements to identify trade patterns.
Explain why specialization and trade can expand consumption possibilities.
Draw and interpret production possibility frontiers and trade possibility frontiers using Python.

Why this chapter matters

The Ricardian model is the simplest formal model of international trade. It shows that countries can gain from trade even when one country is more productive in producing every good.

The key idea is comparative advantage. A country should specialize in the good it can produce at the lowest opportunity cost, not necessarily the good it can produce with the highest absolute productivity.

This logic is essential for the rest of the course. Later chapters use welfare diagrams, trade barriers, WTO rules, and free trade agreement simulations, but the basic motivation for trade starts here.

The basic idea

Suppose two countries produce two goods using only labor. Labor is limited, so producing more of one good requires producing less of another good.

The Ricardian model assumes:

two countries,
two goods,
labor as the only factor of production,
fixed labor supply in each country,
different labor productivity across countries,
competitive markets,
no international movement of labor.

The model is deliberately simple. Its purpose is not to describe every detail of real-world trade. Its purpose is to isolate one powerful mechanism: technology differences create trade opportunities.

Unit labor requirement

A unit labor requirement measures how much labor is needed to produce one unit of a good.

For example, if producing one unit of food requires 2 hours of labor, then the unit labor requirement for food is:

\[ a_{LF} = 2 \]

where:

$a_{LF}$ is the labor required to produce one unit of food.

A lower unit labor requirement means higher labor productivity.

If a country needs fewer labor hours to produce a good than another country, it has an absolute advantage in producing that good.

Labor constraint

Let:

$Q_F$ be the quantity of food,
$Q_C$ be the quantity of cloth,
$a_{LF}$ be labor required per unit of food,
$a_{LC}$ be labor required per unit of cloth,
$L$ be total labor supply.

The labor constraint is:

\[ a_{LF}Q_F + a_{LC}Q_C \leq L \]

If all labor is used, the production possibility frontier is:

\[ a_{LF}Q_F + a_{LC}Q_C = L \]

Solving for cloth gives:

\[ Q_C = \frac{L}{a_{LC}} - \frac{a_{LF}}{a_{LC}}Q_F \]

The slope of the PPF is:

\[ -\frac{a_{LF}}{a_{LC}} \]

The absolute value of the slope gives the opportunity cost of food in terms of cloth.

Opportunity cost

The opportunity cost of producing one more unit of a good is the amount of another good that must be given up.

For food, the opportunity cost is:

\[ OC_F = \frac{a_{LF}}{a_{LC}} \]

This tells us how many units of cloth are given up when one additional unit of food is produced.

For cloth, the opportunity cost is:

\[ OC_C = \frac{a_{LC}}{a_{LF}} \]

This tells us how many units of food are given up when one additional unit of cloth is produced.

Absolute advantage versus comparative advantage

Absolute advantage and comparative advantage are different concepts.

Concept	Meaning
Absolute advantage	A country can produce a good using fewer labor units than another country.
Comparative advantage	A country can produce a good at a lower opportunity cost than another country.

Trade is based on comparative advantage, not absolute advantage.

A country may be less productive in producing both goods and still gain from trade if it has a lower opportunity cost in one of the goods.

Worked example: Oman and Kuwait

Assume Oman and Kuwait produce two goods: food and cloth. Labor is the only input.

Country	Labor required for 1 unit of food	Labor required for 1 unit of cloth	Labor supply
Oman	1	2	2000
Kuwait	2	1	2000

Oman is more productive in food because it needs only 1 labor unit to produce one unit of food. Kuwait is more productive in cloth because it needs only 1 labor unit to produce one unit of cloth.

Oman

Oman’s labor constraint is:

\[ Q_F + 2Q_C = 2000 \]

Solving for cloth:

\[ Q_C = 1000 - 0.5Q_F \]

Oman can produce at most 2000 units of food or 1000 units of cloth.

The opportunity cost of one unit of food in Oman is:

\[ OC_F^{Oman} = \frac{1}{2} = 0.5 \text{ units of cloth} \]

The opportunity cost of one unit of cloth in Oman is:

\[ OC_C^{Oman} = \frac{2}{1} = 2 \text{ units of food} \]

Kuwait

Kuwait’s labor constraint is:

\[ 2Q_F + Q_C = 2000 \]

Solving for cloth:

\[ Q_C = 2000 - 2Q_F \]

Kuwait can produce at most 1000 units of food or 2000 units of cloth.

The opportunity cost of one unit of food in Kuwait is:

\[ OC_F^{Kuwait} = \frac{2}{1} = 2 \text{ units of cloth} \]

The opportunity cost of one unit of cloth in Kuwait is:

\[ OC_C^{Kuwait} = \frac{1}{2} = 0.5 \text{ units of food} \]

Trade pattern

Oman has the lower opportunity cost of food:

\[ 0.5 < 2 \]

So Oman has a comparative advantage in food.

Kuwait has the lower opportunity cost of cloth:

\[ 0.5 < 2 \]

So Kuwait has a comparative advantage in cloth.

The Ricardian prediction is:

Oman specializes in food and exports food.
Kuwait specializes in cloth and exports cloth.

Trade possibility frontier

The production possibility frontier shows what a country can produce. The trade possibility frontier shows what a country can consume after specialization and trade.

Suppose the world relative price is:

\[ 1 \text{ unit of food} = 1 \text{ unit of cloth} \]

This means the international price ratio is:

\[ P_F/P_C = 1 \]

If Oman specializes fully in food, it produces 2000 units of food. At the world price, it can trade food for cloth at a one-for-one ratio. Its trade possibility frontier is:

\[ Q_C = 2000 - Q_F \]

If Kuwait specializes fully in cloth, it produces 2000 units of cloth. At the same world price, its trade possibility frontier is:

\[ Q_C = 2000 - Q_F \]

For both countries, the TPF lies outside the PPF over part of the consumption space. This is the gain from trade: countries can consume combinations that they could not produce on their own.

Python application: PPF and TPF

The following code creates the PPF and TPF for Oman and Kuwait.

Code

import pandas as pd

ricardian_data = pd.DataFrame({
    "Country": ["Oman", "Kuwait"],
    "Labor per unit of food": [1, 2],
    "Labor per unit of cloth": [2, 1],
    "Labor supply": [2000, 2000]
})

ricardian_data

Table 4.1

	Country	Labor per unit of food	Labor per unit of cloth	Labor supply
0	Oman	1	2	2000
1	Kuwait	2	1	2000

Code

opportunity_costs = ricardian_data.copy()
opportunity_costs["OC of food in cloth"] = (
    opportunity_costs["Labor per unit of food"] / opportunity_costs["Labor per unit of cloth"]
)
opportunity_costs["OC of cloth in food"] = (
    opportunity_costs["Labor per unit of cloth"] / opportunity_costs["Labor per unit of food"]
)

opportunity_costs[["Country", "OC of food in cloth", "OC of cloth in food"]]

Table 4.2

	Country	OC of food in cloth	OC of cloth in food
0	Oman	0.5	2.0
1	Kuwait	2.0	0.5

Code

import numpy as np
import matplotlib.pyplot as plt

countries = {
    "Oman": {"a_food": 1, "a_cloth": 2, "labor": 2000, "specializes_in": "food"},
    "Kuwait": {"a_food": 2, "a_cloth": 1, "labor": 2000, "specializes_in": "cloth"}
}

world_price_food_in_cloth = 1

fig, axes = plt.subplots(1, 2, figsize=(10, 4.8))

for ax, (country, p) in zip(axes, countries.items()):
    max_food = p["labor"] / p["a_food"]
    max_cloth = p["labor"] / p["a_cloth"]
    food = np.linspace(0, max_food, 200)
    cloth_ppf = (p["labor"] - p["a_food"] * food) / p["a_cloth"]

    if p["specializes_in"] == "food":
        specialized_value = max_food
        food_tpf = np.linspace(0, specialized_value, 200)
        cloth_tpf = specialized_value * world_price_food_in_cloth - food_tpf * world_price_food_in_cloth
    else:
        specialized_value = max_cloth
        food_tpf = np.linspace(0, specialized_value / world_price_food_in_cloth, 200)
        cloth_tpf = specialized_value - food_tpf * world_price_food_in_cloth

    ax.plot(food, cloth_ppf, label="PPF")
    ax.plot(food_tpf, cloth_tpf, linestyle="--", label="TPF")
    ax.set_title(country)
    ax.set_xlabel("Food")
    ax.set_ylabel("Cloth")
    ax.set_xlim(left=0)
    ax.set_ylim(bottom=0)
    ax.legend()

plt.tight_layout()
plt.show()

Figure 4.1: Production possibility frontiers and trade possibility frontiers for Oman and Kuwait.

Interpreting the graph

The PPF shows what each country can produce before trade. The TPF shows what each country can consume after specializing according to comparative advantage and trading at the world price.

For Oman, the TPF is flatter than the PPF because the world market gives Oman more cloth per unit of food than it can obtain by producing cloth domestically. Oman gains by producing food and trading some of it for cloth.

For Kuwait, the TPF is flatter than its PPF in the same diagram because Kuwait specializes in cloth and can trade cloth for food at the world price. Kuwait gains because it can obtain more food through trade than by shifting labor away from cloth production.

The important message is not that every country produces only one good in the real world. The important message is that specialization according to comparative advantage expands consumption possibilities.

When does trade occur?

Trade occurs when the world relative price lies between the two countries’ opportunity costs.

For food:

\[ OC_F^{Oman} = 0.5 \]

\[ OC_F^{Kuwait} = 2 \]

For both countries to gain from trade, the world relative price of food in terms of cloth must satisfy:

\[ 0.5 < P_F/P_C < 2 \]

If the world price is inside this range, Oman is willing to export food and Kuwait is willing to import food.

In the worked example, the world price is:

\[ P_F/P_C = 1 \]

This lies between 0.5 and 2, so both countries can benefit from trade.

How trade raises welfare in the Ricardian model

Trade raises welfare because it allows countries to use their labor more efficiently.

Without trade, each country must produce what it consumes. With trade, each country can specialize in what it produces relatively efficiently, then trade for the other good.

In this model, trade gains are visible as an expansion of consumption possibilities beyond the PPF.

Key intuition

A country does not need to be the best at producing a good to export it. It only needs to be relatively better at producing that good compared with its alternative use of labor.

Common mistake: confusing absolute and comparative advantage

A common mistake is to say that a country should export the good in which it has absolute advantage. This is not always correct.

Trade is governed by opportunity cost. A country with an absolute advantage in all goods can still benefit by specializing in the good where its relative advantage is strongest.

A country with no absolute advantage can still export the good where its relative disadvantage is smallest.

Limits of the Ricardian model

The Ricardian model is powerful, but it is very simple. It has several limitations:

It uses only one factor of production: labor.
It assumes labor productivity is fixed.
It predicts strong specialization, which is rarely observed fully in real economies.
It does not directly explain income distribution between labor and capital.
It ignores transport costs and trade barriers.
It does not explain firm-level differences within the same industry.

These limitations do not make the model useless. They simply remind us that each model answers a specific question.

The Ricardian model answers this question:

How can technology differences and opportunity costs create gains from trade?

The next chapter introduces the Heckscher-Ohlin model, where trade is explained by differences in factor endowments such as labor and capital.

Key takeaway

The Ricardian model explains trade through comparative advantage. Countries gain from trade when they specialize in goods they produce at lower opportunity cost and exchange with other countries. The model shows that trade can be beneficial even if one country has an absolute advantage in all goods.

Review questions

What is a unit labor requirement?
What does a lower unit labor requirement imply about productivity?
Write the labor constraint for a two-good Ricardian economy.
What is opportunity cost?
What is the difference between absolute advantage and comparative advantage?
In the Oman-Kuwait example, which country has comparative advantage in food?
In the Oman-Kuwait example, which country has comparative advantage in cloth?
Why must the world relative price lie between the two opportunity costs for both countries to gain from trade?
What is the difference between a PPF and a TPF?
Give one limitation of the Ricardian model.

Practice problem

Suppose Home and Foreign produce rice and textiles using only labor.

Country	Labor required for 1 unit of rice	Labor required for 1 unit of textiles	Labor supply
Home	2	4	800
Foreign	6	3	900

Answer the following questions:

Derive the labor constraint for each country.
Derive the PPF equation for each country with rice on the horizontal axis.
Calculate the opportunity cost of rice in each country.
Calculate the opportunity cost of textiles in each country.
Which country has comparative advantage in rice?
Which country has comparative advantage in textiles?
If the world relative price is $1$ unit of rice for $1$ unit of textiles, can both countries gain from trade? Explain.

--- title: "02. The Ricardian Model" --- ## Learning objectives By the end of this chapter, you should be able to: 1. Define opportunity cost and comparative advantage. 2. Distinguish between absolute advantage and comparative advantage. 3. Write a labor constraint and derive a production possibility frontier. 4. Use unit labor requirements to identify trade patterns. 5. Explain why specialization and trade can expand consumption possibilities. 6. Draw and interpret production possibility frontiers and trade possibility frontiers using Python. ## Why this chapter matters The Ricardian model is the simplest formal model of international trade. It shows that countries can gain from trade even when one country is more productive in producing every good. The key idea is **comparative advantage**. A country should specialize in the good it can produce at the lowest opportunity cost, not necessarily the good it can produce with the highest absolute productivity. This logic is essential for the rest of the course. Later chapters use welfare diagrams, trade barriers, WTO rules, and free trade agreement simulations, but the basic motivation for trade starts here. ## The basic idea Suppose two countries produce two goods using only labor. Labor is limited, so producing more of one good requires producing less of another good. The Ricardian model assumes: - two countries, - two goods, - labor as the only factor of production, - fixed labor supply in each country, - different labor productivity across countries, - competitive markets, - no international movement of labor. The model is deliberately simple. Its purpose is not to describe every detail of real-world trade. Its purpose is to isolate one powerful mechanism: **technology differences create trade opportunities**. ## Unit labor requirement A **unit labor requirement** measures how much labor is needed to produce one unit of a good. For example, if producing one unit of food requires 2 hours of labor, then the unit labor requirement for food is: $$ a_{LF} = 2 $$ where: - $a_{LF}$ is the labor required to produce one unit of food. A lower unit labor requirement means higher labor productivity. If a country needs fewer labor hours to produce a good than another country, it has an **absolute advantage** in producing that good. ## Labor constraint Let: - $Q_F$ be the quantity of food, - $Q_C$ be the quantity of cloth, - $a_{LF}$ be labor required per unit of food, - $a_{LC}$ be labor required per unit of cloth, - $L$ be total labor supply. The labor constraint is: $$ a_{LF}Q_F + a_{LC}Q_C \leq L $$ If all labor is used, the production possibility frontier is: $$ a_{LF}Q_F + a_{LC}Q_C = L $$ Solving for cloth gives: $$ Q_C = \frac{L}{a_{LC}} - \frac{a_{LF}}{a_{LC}}Q_F $$ The slope of the PPF is: $$ -\frac{a_{LF}}{a_{LC}} $$ The absolute value of the slope gives the opportunity cost of food in terms of cloth. ## Opportunity cost The **opportunity cost** of producing one more unit of a good is the amount of another good that must be given up. For food, the opportunity cost is: $$ OC_F = \frac{a_{LF}}{a_{LC}} $$ This tells us how many units of cloth are given up when one additional unit of food is produced. For cloth, the opportunity cost is: $$ OC_C = \frac{a_{LC}}{a_{LF}} $$ This tells us how many units of food are given up when one additional unit of cloth is produced. ## Absolute advantage versus comparative advantage Absolute advantage and comparative advantage are different concepts. | Concept | Meaning | |---|---| | Absolute advantage | A country can produce a good using fewer labor units than another country. | | Comparative advantage | A country can produce a good at a lower opportunity cost than another country. | Trade is based on **comparative advantage**, not absolute advantage. A country may be less productive in producing both goods and still gain from trade if it has a lower opportunity cost in one of the goods. ## Worked example: Oman and Kuwait Assume Oman and Kuwait produce two goods: food and cloth. Labor is the only input. | Country | Labor required for 1 unit of food | Labor required for 1 unit of cloth | Labor supply | |---|---:|---:|---:| | Oman | 1 | 2 | 2000 | | Kuwait | 2 | 1 | 2000 | Oman is more productive in food because it needs only 1 labor unit to produce one unit of food. Kuwait is more productive in cloth because it needs only 1 labor unit to produce one unit of cloth. ### Oman Oman's labor constraint is: $$ Q_F + 2Q_C = 2000 $$ Solving for cloth: $$ Q_C = 1000 - 0.5Q_F $$ Oman can produce at most 2000 units of food or 1000 units of cloth. The opportunity cost of one unit of food in Oman is: $$ OC_F^{Oman} = \frac{1}{2} = 0.5 \text{ units of cloth} $$ The opportunity cost of one unit of cloth in Oman is: $$ OC_C^{Oman} = \frac{2}{1} = 2 \text{ units of food} $$ ### Kuwait Kuwait's labor constraint is: $$ 2Q_F + Q_C = 2000 $$ Solving for cloth: $$ Q_C = 2000 - 2Q_F $$ Kuwait can produce at most 1000 units of food or 2000 units of cloth. The opportunity cost of one unit of food in Kuwait is: $$ OC_F^{Kuwait} = \frac{2}{1} = 2 \text{ units of cloth} $$ The opportunity cost of one unit of cloth in Kuwait is: $$ OC_C^{Kuwait} = \frac{1}{2} = 0.5 \text{ units of food} $$ ### Trade pattern Oman has the lower opportunity cost of food: $$ 0.5 < 2 $$ So Oman has a comparative advantage in food. Kuwait has the lower opportunity cost of cloth: $$ 0.5 < 2 $$ So Kuwait has a comparative advantage in cloth. The Ricardian prediction is: - Oman specializes in food and exports food. - Kuwait specializes in cloth and exports cloth. ## Trade possibility frontier The production possibility frontier shows what a country can produce. The **trade possibility frontier** shows what a country can consume after specialization and trade. Suppose the world relative price is: $$ 1 \text{ unit of food} = 1 \text{ unit of cloth} $$ This means the international price ratio is: $$ P_F/P_C = 1 $$ If Oman specializes fully in food, it produces 2000 units of food. At the world price, it can trade food for cloth at a one-for-one ratio. Its trade possibility frontier is: $$ Q_C = 2000 - Q_F $$ If Kuwait specializes fully in cloth, it produces 2000 units of cloth. At the same world price, its trade possibility frontier is: $$ Q_C = 2000 - Q_F $$ For both countries, the TPF lies outside the PPF over part of the consumption space. This is the gain from trade: countries can consume combinations that they could not produce on their own. ## Python application: PPF and TPF The following code creates the PPF and TPF for Oman and Kuwait. ```{python} #| label: tbl-ricardian-parameters #| echo: true import pandas as pd ricardian_data = pd.DataFrame({ "Country": ["Oman", "Kuwait"], "Labor per unit of food": [1, 2], "Labor per unit of cloth": [2, 1], "Labor supply": [2000, 2000] }) ricardian_data ``` ```{python} #| label: tbl-opportunity-costs #| echo: true opportunity_costs = ricardian_data.copy() opportunity_costs["OC of food in cloth"] = ( opportunity_costs["Labor per unit of food"] / opportunity_costs["Labor per unit of cloth"] ) opportunity_costs["OC of cloth in food"] = ( opportunity_costs["Labor per unit of cloth"] / opportunity_costs["Labor per unit of food"] ) opportunity_costs[["Country", "OC of food in cloth", "OC of cloth in food"]] ``` ```{python} #| label: fig-ricardian-ppf-tpf #| fig-cap: "Production possibility frontiers and trade possibility frontiers for Oman and Kuwait." #| fig-width: 8 #| fig-height: 4.8 #| echo: true import numpy as np import matplotlib.pyplot as plt countries = { "Oman": {"a_food": 1, "a_cloth": 2, "labor": 2000, "specializes_in": "food"}, "Kuwait": {"a_food": 2, "a_cloth": 1, "labor": 2000, "specializes_in": "cloth"} } world_price_food_in_cloth = 1 fig, axes = plt.subplots(1, 2, figsize=(10, 4.8)) for ax, (country, p) in zip(axes, countries.items()): max_food = p["labor"] / p["a_food"] max_cloth = p["labor"] / p["a_cloth"] food = np.linspace(0, max_food, 200) cloth_ppf = (p["labor"] - p["a_food"] * food) / p["a_cloth"] if p["specializes_in"] == "food": specialized_value = max_food food_tpf = np.linspace(0, specialized_value, 200) cloth_tpf = specialized_value * world_price_food_in_cloth - food_tpf * world_price_food_in_cloth else: specialized_value = max_cloth food_tpf = np.linspace(0, specialized_value / world_price_food_in_cloth, 200) cloth_tpf = specialized_value - food_tpf * world_price_food_in_cloth ax.plot(food, cloth_ppf, label="PPF") ax.plot(food_tpf, cloth_tpf, linestyle="--", label="TPF") ax.set_title(country) ax.set_xlabel("Food") ax.set_ylabel("Cloth") ax.set_xlim(left=0) ax.set_ylim(bottom=0) ax.legend() plt.tight_layout() plt.show() ``` ## Interpreting the graph The PPF shows what each country can produce before trade. The TPF shows what each country can consume after specializing according to comparative advantage and trading at the world price. For Oman, the TPF is flatter than the PPF because the world market gives Oman more cloth per unit of food than it can obtain by producing cloth domestically. Oman gains by producing food and trading some of it for cloth. For Kuwait, the TPF is flatter than its PPF in the same diagram because Kuwait specializes in cloth and can trade cloth for food at the world price. Kuwait gains because it can obtain more food through trade than by shifting labor away from cloth production. The important message is not that every country produces only one good in the real world. The important message is that specialization according to comparative advantage expands consumption possibilities. ## When does trade occur? Trade occurs when the world relative price lies between the two countries' opportunity costs. For food: $$ OC_F^{Oman} = 0.5 $$ $$ OC_F^{Kuwait} = 2 $$ For both countries to gain from trade, the world relative price of food in terms of cloth must satisfy: $$ 0.5 < P_F/P_C < 2 $$ If the world price is inside this range, Oman is willing to export food and Kuwait is willing to import food. In the worked example, the world price is: $$ P_F/P_C = 1 $$ This lies between 0.5 and 2, so both countries can benefit from trade. ## How trade raises welfare in the Ricardian model Trade raises welfare because it allows countries to use their labor more efficiently. Without trade, each country must produce what it consumes. With trade, each country can specialize in what it produces relatively efficiently, then trade for the other good. In this model, trade gains are visible as an expansion of consumption possibilities beyond the PPF. :::: {.callout-note} ## Key intuition A country does not need to be the best at producing a good to export it. It only needs to be relatively better at producing that good compared with its alternative use of labor. :::: ## Common mistake: confusing absolute and comparative advantage A common mistake is to say that a country should export the good in which it has absolute advantage. This is not always correct. Trade is governed by opportunity cost. A country with an absolute advantage in all goods can still benefit by specializing in the good where its relative advantage is strongest. A country with no absolute advantage can still export the good where its relative disadvantage is smallest. ## Limits of the Ricardian model The Ricardian model is powerful, but it is very simple. It has several limitations: 1. It uses only one factor of production: labor. 2. It assumes labor productivity is fixed. 3. It predicts strong specialization, which is rarely observed fully in real economies. 4. It does not directly explain income distribution between labor and capital. 5. It ignores transport costs and trade barriers. 6. It does not explain firm-level differences within the same industry. These limitations do not make the model useless. They simply remind us that each model answers a specific question. The Ricardian model answers this question: > How can technology differences and opportunity costs create gains from trade? The next chapter introduces the Heckscher-Ohlin model, where trade is explained by differences in factor endowments such as labor and capital. ## Key takeaway The Ricardian model explains trade through comparative advantage. Countries gain from trade when they specialize in goods they produce at lower opportunity cost and exchange with other countries. The model shows that trade can be beneficial even if one country has an absolute advantage in all goods. ## Review questions 1. What is a unit labor requirement? 2. What does a lower unit labor requirement imply about productivity? 3. Write the labor constraint for a two-good Ricardian economy. 4. What is opportunity cost? 5. What is the difference between absolute advantage and comparative advantage? 6. In the Oman-Kuwait example, which country has comparative advantage in food? 7. In the Oman-Kuwait example, which country has comparative advantage in cloth? 8. Why must the world relative price lie between the two opportunity costs for both countries to gain from trade? 9. What is the difference between a PPF and a TPF? 10. Give one limitation of the Ricardian model. ## Practice problem Suppose Home and Foreign produce rice and textiles using only labor. | Country | Labor required for 1 unit of rice | Labor required for 1 unit of textiles | Labor supply | |---|---:|---:|---:| | Home | 2 | 4 | 800 | | Foreign | 6 | 3 | 900 | Answer the following questions: 1. Derive the labor constraint for each country. 2. Derive the PPF equation for each country with rice on the horizontal axis. 3. Calculate the opportunity cost of rice in each country. 4. Calculate the opportunity cost of textiles in each country. 5. Which country has comparative advantage in rice? 6. Which country has comparative advantage in textiles? 7. If the world relative price is $1$ unit of rice for $1$ unit of textiles, can both countries gain from trade? Explain.