Suppose that there are two cities: Winterfell and King’s Landing. There are also

Question

Suppose that there are two cities: Winterfell and King’s Landing. There are also two goods: grain and swords. In King’s Landing, it takes 2 workers to produce 1 sword, and 3 workers to produce 1 unit of grain. In Winterfell, it takes 4 workers to produce 1 sword, and 2 workers to produce 1 unit of grain. There are 1000 workers in each city.

a. Suppose that both cities are initially at war, so they are not trading with one another. Suppose also that people in both cities consume grain and swords in equal proportions (i.e. the total quantity of grain consumed will equal the total quantity of swords consumed). What is each city’s total production?

b. Would total production increase if one or more cities specialized and traded? Given the demands for grain and swords described in [a], explain the patterns of production and trade

Explanation / Answer

Answer

a)

KINGS LANDING

Let total number of Grain produced = x and also as they prefer to consumer both grain and sword in equal amount hence total number of Swords produced = x. Total no. of available = 1000.

Also It takes 2 workers to produce 1 sword, and 3 workers to produce 1 unit of grain.

Hence,

2x + 3x = 1000 => x = 200.

Hence total number of Grain produced = 200 and total number of Sword produced = 200.

WINTERFELL

Let total number of Grain produced = y and also as they prefer to consumer both grain and sword in equal amount hence total number of Swords produced = y. Total no. of available = 1000.

Also It takes 4 workers to produce 1 sword, and 2 workers to produce 1 unit of grain.

Hence,

4y + 2y = 1000 => y = 166.67 ~ 166.

Hence total number of Grain produced = 166 and total number of Sword produced = 166.

b)

Opportunity Cost for producing 1unit of grain in KingsLanding is 3/2 = 1.5 unit of sword while Opportunity Cost for producing 1unit of grain in Winterfell is 2/4 = 0.5 unit of sword. As Opportunity cost is lesser for Winterfell in Producing Grain Hence Winterfell will specialise in Consumer Grain, While KingsLanding will Specialise in Sword.

If KingsLanding specialises in Sword then they will produce = 1000/2 = 500 Swords and If Winterfell specialises in Consumer Grain then they will produce = 1000/2 = 500 Grain.

Hence se can see from above that Total Production will increases If these country specializes.

As Kingslanding Specializes in Swords, they will export Sword and As Winterfell specializes in Consumer Grain, They will export Consumer Grain. As the consumer in both Winterfell and Kings Landing wants to cinsumer both the goods in equal Proportion hence After Trading no. ofConsumer Grains and no. of Swords are equal in Both Kings Landing. Assumer They Both are ready to traode 1 Sword for 1 Consumer Grain, then They both will end up consuming 250 units of both Swords and Consumer Grain(Note that terms of Trade can Differ).

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