Final answer:
Home will specialize in cheese and earn $12/hour, while Foreign will specialize in wine and earn $4/hour. Therefore, Home's wages are higher than Foreign's.
Step-by-step explanation:
The question regards calculating wages after specialization based on given productivity and product prices for two countries, Home and Foreign. By comparing the hours of labor required to produce cheese and wine in both countries, we can determine their respective areas of comparative advantage. Home requires 1 hour to produce 1 lb of cheese and 2 hours to produce 1 gallon of wine. Foreign requires 6 hours for 1 lb of cheese and 3 hours for 1 gallon of wine.
Since Home has a lower labor cost in producing both goods, it is more efficient overall. However, comparative advantage looks at the relative efficiency in producing one good versus another. Home has a more significant comparative advantage in cheese production (1h/pound versus 6h/pound in Foreign), while Foreign's comparative advantage in wine is less pronounced (3h/gallon versus 2h/gallon in Home).
Assuming each country specializes in the good for which they have a comparative advantage, Home will produce cheese and Foreign will produce wine. Home's wage, based on the price of cheese ($12/lb) and its productivity (1 lb/h), will be $12 per hour. Foreign's wage, based on the price of wine ($12/gallon) and its productivity (1/3 gallon/hour), will be $4 per hour. Therefore, Home's wages are higher than Foreign's following specialization.