Chapter 3 (everything but emperical evidence)

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The trade-off when producing one good instead of another

The units of labour required to produce one unit of a good in terms of the labour required to produce another good
(in this example from the foreign perspective)
The items in red are the calculations
Generally, the price of the good/the unit labour requirements
In autarky, wages=price of the good. there's no profit in autarky
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If the country only produced one of the goods
L/aL_i and L/aL_x
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The flat areas correspond to relative wages that equal the ratio of Home to Foreign productivity of the goods
In the example RD=RS=3 - Home will produce everything to the left and Foreign everything to the right of the RS line

IF RD=RS is at a flat point, both countries will produce that one good and the other goods as stated above