PLEASE USE THE COUNTRIES (CHINA and FRANCE) AND THE GOODS (BIKES AND CARS) China
ID: 1131143 • Letter: P
Question
PLEASE USE THE COUNTRIES (CHINA and FRANCE) 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
Q1)
(Assume Each worker works for 1 hour a day & all are employed)
China has 10000 workers an d they need to produce 500 cars
In China if car takes 16 hrs then 500*16 hrs = 8000 hrs where only 2000 hrs left to produce Bikes
Therfoer Bikes are produced and consumed will be 2000/2 = 1000 Bykes
Q2)
In France both the good take same time of 8 hrs and Price of Car is higher than Price of Bike hence they should produce cars the most
Q3)
AS we see China has Comparative advantage in producing Bikes than that of France simliarly France has an comaparative advantage in prodcng Cars to that of China Hence China should produce Bike and France should only use labor to produce Cars
Hence China could save 8 hrs per car and France could save 6 hrs per Bike.
Q 6)
This is quite straightforward as opportunity cost of not producing Bike beomes niegligible WOrld will start producing Cars
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