Consider China and US in a Ricardian world. Each country produces two goods, corn andwheat. Each country has 600 units of labour hour available. The table of unit labour costs forproduction of each good in each country is below:Corn WheatChina 6 4US 2 2a. 1) What is the marginal product of labour in corn in China?2) What is the opportunity cost of producing corn in China?b. 1) What is the marginal product of labour in wheat in China?2) What is the opportunity cost of producing wheat in China?c. 1) What is the marginal product of labour in corn in US?2) What is the opportunity cost of producing corn in US?d. 1) What is the marginal product of labour in wheat in US?2) What is the opportunity cost of producing wheat in US?e. Which country has absolute advantage in corn?f. Which country has absolute advantage in wheat?g. Which country has comparative advantage in corn?h. Which country has comparative advantage in wheat?
Question
Consider China and US in a Ricardian world. Each country produces two goods, corn andwheat. Each country has 600 units of labour hour available. The table of unit labour costs forproduction of each good in each country is below:Corn WheatChina 6 4US 2 2a. 1) What is the marginal product of labour in corn in China?2) What is the opportunity cost of producing corn in China?b. 1) What is the marginal product of labour in wheat in China?2) What is the opportunity cost of producing wheat in China?c. 1) What is the marginal product of labour in corn in US?2) What is the opportunity cost of producing corn in US?d. 1) What is the marginal product of labour in wheat in US?2) What is the opportunity cost of producing wheat in US?e. Which country has absolute advantage in corn?f. Which country has absolute advantage in wheat?g. Which country has comparative advantage in corn?h. Which country has comparative advantage in wheat?
Solution
a. 1) The marginal product of labor in corn in China can be calculated by dividing the change in corn production by the change in labor input. However, the table does not provide information on the change in corn production, so we cannot determine the exact value of the marginal product of labor in corn in China.
- The opportunity cost of producing corn in China can be calculated by comparing the unit labor costs of corn production in China and the US. In China, the unit labor cost of corn production is 6, while in the US it is 2. Therefore, the opportunity cost of producing corn in China is 6/2 = 3 units of wheat.
b. 1) Similar to the previous question, we cannot determine the exact value of the marginal product of labor in wheat in China without information on the change in wheat production.
- The opportunity cost of producing wheat in China can be calculated by comparing the unit labor costs of wheat production in China and the US. In China, the unit labor cost of wheat production is 4, while in the US it is 2. Therefore, the opportunity cost of producing wheat in China is 4/2 = 2 units of corn.
c. 1) Again, without information on the change in corn production, we cannot determine the exact value of the marginal product of labor in corn in the US.
- The opportunity cost of producing corn in the US can be calculated by comparing the unit labor costs of corn production in the US and China. In the US, the unit labor cost of corn production is 2, while in China it is 6. Therefore, the opportunity cost of producing corn in the US is 2/6 = 1/3 units of wheat.
d. 1) Similarly, without information on the change in wheat production, we cannot determine the exact value of the marginal product of labor in wheat in the US.
- The opportunity cost of producing wheat in the US can be calculated by comparing the unit labor costs of wheat production in the US and China. In the US, the unit labor cost of wheat production is 2, while in China it is 4. Therefore, the opportunity cost of producing wheat in the US is 2/4 = 1/2 units of corn.
e. To determine which country has absolute advantage in corn, we compare the unit labor costs of corn production in China and the US. In China, the unit labor cost of corn production is 6, while in the US it is 2. Therefore, the US has absolute advantage in corn production.
f. To determine which country has absolute advantage in wheat, we compare the unit labor costs of wheat production in China and the US. In China, the unit labor cost of wheat production is 4, while in the US it is 2. Therefore, both countries have the same unit labor cost for wheat production, and neither has absolute advantage.
g. To determine which country has comparative advantage in corn, we compare the opportunity costs of producing corn in China and the US. In China, the opportunity cost of producing corn is 3 units of wheat, while in the US it is 1/3 units of wheat. Therefore, the US has comparative advantage in corn production.
h. To determine which country has comparative advantage in wheat, we compare the opportunity costs of producing wheat in China and the US. In China, the opportunity cost of producing wheat is 2 units of corn, while in the US it is 1/2 units of corn. Therefore, both countries have the same opportunity cost for wheat production, and neither has comparative advantage.
Similar Questions
Consider China and US in a Ricardian world. Each country produces two goods, corn andwheat. Each country has 600 units of labour hour available. The table of unit labour costs forproduction of each good in each country is below:Corn WheatChina 6 4US 2 2a. Derive China’s production possibility frontier (PPF). (Write down an equation of China’sPPF)b. Draw China’s PPF. Have the quantity of corn on the horizontal axis.(Derive US’sproduction possibility frontier (PPF). (Write down an equation of US’s PPF)c. Draw US’s PPF.Have the quantity of corn on the horizontal axis.d. Derive US’s production possibility frontier (PPF). (Write down an equation of China’sPPF)e. What is the slope of PPF of China? Explain your answer.f. What is the slope of PPF of US? Explain your answer.g. In the absence of trade, what would be the prices of corn in terms of wheat in China?
Consider Home and Foreign in a Ricardian world (includes all the assumptions of the Ricardianmodel). Each country produces two goods, wine and cotton. Each country has 4,800 labour hoursavailable. The accompanying table shows the number of hours required to produce one unit ofeach good in each country. Answer the following questions using the information given by thetable:a. What is the opportunity cost of cotton in each country? Show your work.b. Draw the graph of the production possibility frontier (PPF).c. Which country has an absolute advantage in Wine? Explain your answer.d. Which country has a comparative advantage in Wine? Show your work and explain your answer.e. Which good does each country produce and export when the equilibrium international relativeprice of wine in terms of cotton is 1?f. Suppose the equilibrium international relative price of wine in terms of cotton is 1. Draw the graphof the production possibility frontier (PPF) for each country when they trade. Show how the twocountries can benefit from free trade. Explain your answer and fully label your graph to get marks.g. Draw the world relative supply (RS) of wine. Fully label your graph to get marks (Do not drawthe world relative demand (RD) of wine yet).h. Now, suppose that the world relative demand is drawn such that the equilibrium internationalrelative price of wine is at 1. Draw the world relative demand curve of wine on the diagram above(in part g). Explain which country (countries) benefit(s) (most) from free trade in this case.i. Now, suppose that the world relative demand is drawn such that the equilibrium internationalrelative price of wine is at 1.25 (=5/4). Draw the world relative demand curve of wine on thediagram above (in part g). Explain which country (countries) benefit(s) (most) from free trade inthis case.j. Calculate Home country’s relative productivity of labour in each sector.k. Suppose that the price of wine is $10 per bottle and the price of cotton is $10 per bushel. Calculatethe relative wage in Home (the wage of Home relative to the wage in Foreign). Show your workand explain your answer.l. Show the relative wage in Home lies in between the relative productivity of labour of two sectorsusing the information you obtained from parts j and k.Wine CottonHome 6 8Foreign 5 4
Suppose that Richland and Prosperity have the production possibilities shown below: RICHLAND’S PRODUCTION POSSIBILITIES(millions of units) A B C D EWheat 60 45 30 15 0Wine 0 5 10 15 20PROSPERITY’S PRODUCTION POSSIBILITIES(millions of units) A B C D EWheat 40 30 20 10 0Wine 0 15 30 45 60 Assume that cost and productivity remain constant. Round your answers below to 2 decimal places. a. What is the opportunity cost of producing one bushel of wheat in Richland? 1 bushel of wheat = barrels of wine. b. What is the opportunity cost of producing one barrel of wine in Richland? 1 barrel of wine = bushels of wheat. c. What is the opportunity cost of producing one bushel of wheat in Prosperity? 1 bushel of wheat = barrels of wine. d. What is the opportunity cost of producing one barrel of wine in Prosperity? 1 barrel of wine = bushels of wheat. e. In what product does Richland have a comparative advantage? Richland: f. In what product does Prosperity have a comparative advantage? Prosperity: Suppose that both countries are presently producing combination C.g. Fill in the blanks in the following table: TOTAL OUTPUT IN MILLIONS OF UNITS Wheat WineRichland Prosperity Total Both countries Now suppose that each country specializes in the product in which it has a comparative advantage.h. Show the results in the following table: Wheat WineRichland Prosperity Total Both countries i. What is the joint gain from trade? Wheat and Wine Suppose that the two countries establish the terms of trade at 1 wine = 1.5 wheat, and Prosperity decides to export 18 wine to Richland. j. In the following table show how the two countries will share the gains from trade. Round your answers below to 1 decimal place. GAINS FOR EACH COUNTRY Wheat WineRichland Prosperity Total Both countries
Answer the question on the basis of the following production possibilities tables for two countries, North Cantina and South Cantina. North Cantina Production PossibilitiesA B C D E FCapital Goods 5 4 3 2 1 0Consumer Goods 0 10 18 24 28 30 South Cantina Production PossibilitiesA B C D E FCapital Goods 5 4 3 2 1 0Consumer Goods 0 8 15 21 25 27 Refer to the tables. If North Cantina is producing at production alternative A, the opportunity cost of the first unit of consumer goods will beMultiple Choice5 units of capital goods.1/10 of a unit of capital goods.1/5 of a unit of capital goods.1 unit of capital goods.
. Under Ricardian world, if the relative price of corn is higher than the opportunity costs ofcorn, which good(s) does China produce?A) Corn onlyB) Wheat onlyC) Both corn and wheatD) We don’t know.
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