PLEASE USING THE INFO WITH THE COUNTRIES (FRANCE AND CHINA) AND THE GOODS (BIKES
ID: 1131142 • Letter: P
Question
PLEASE USING THE INFO WITH THE COUNTRIES (FRANCE AND CHINA) AND THE GOODS (BIKES and CARS)
China and France produce Bikes and Cars. Both goods are manufactured using only one production factor (LABOR). The following table shows the unit labor requirements for each product in each country.
BIKE
CAR
CHINA
2 Hrs.
16 Hrs.
FRANCE
8 Hrs.
8 Hrs.
NOTE: CHINA HAS 10,000 WORKERS AND FRANCE HAS 5,000 WORKERS.
QUESTIONS:
1. Suppose that in autarky (no trade), China produces and consumes 500 Cars.
Find the quantity of Bikes that is produced and consumed.
2. Suppose that, in France, the prices of Bikes and Cars are 10% and 50%, respectively.
What good are the French workers going to produce?
3. Finding the opportunity cost of Bike in each country, indicate the pattern of specialization for trading between both countries.
4. Find the wage level in each country and the cost per hour of each good in each country. Using the cost per hour, explain the cost advantage of China and France.
Note: Verify that the global relative price of Bike (Car) is between the opportunity costs of Bike (Car)).
5. Find the global relative quantity of Bikes when China and France are trading.
6. When would the world (China & France) just produce Cars?
BIKE
CAR
CHINA
2 Hrs.
16 Hrs.
FRANCE
8 Hrs.
8 Hrs.
Explanation / Answer
In fig.
OX axis = Production and Consumption of Cars to electronics
OY axis = Prices of goods P1/P2
RD = Relative Demand Curve
RS = Relative Supply Curve
Point A = RD > RS Point A = Disequilibrium Point
Point B = RS > RD Point B = Disequilibrium Point
Point E = RD=RS Point E = Equilibrium Point.
ii) Japan has comparitive advantage in car production.
In above figure at point E where equilibrium relative price is such that Japan specializes in production of cars and China in production of electronics.
iii) If labour requirement has been decreased from to unable to export electronics to Japan because in Japait will reduce the terms of trade for China that it will be n it already cost to produce electronics. So Japan will not specialize in only production of cars but in production of both the commodities and it may be possible that Japan will export both car and electronics goods to China.
iv) This is shown in Figure at point E1 where demand for electronics goods produced by china is reduced.
RD RD1 Production and consumption decreased from ON ON1
v) Demand for electronics goods produced by china will be decreased and Relative Demand curve will shift downward. So it will cause positive terms of trade in case of Japan because it will gain by producing and exporting both the goods and negative terms of trade in case of China as it will have to import both the goods from Japan.
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