. Country A has 30,000 units of labor and can produce 2 goods, manufactures and

Question

. Country A has 30,000 units of labor and can produce 2 goods, manufactures and food. A’s producers take 3 units of labor to produce one unit of manufactures and 12 units to produce one unit of food. Country B has 50000 units of labor and takes 5 units to produce one unit of manufactures and 10 units to produce one unit of food. What is the price of manufactures in terms of food at which A and B would respectively supply manufactures? What would B export in Adam Smith’s world? What is the amount it could supply?

Explanation / Answer

Labor in country A = 30,000

Labor used to produce manufacturs = 3

Labor used to produce food = 12

Thus, Country A can produce either 10,000 manufacturs or 2500 food

Or, 1 manufacture = 0.25 Food

Similarly,

Labor in country B is 50,000

Labor used to produce manufacture = 5

Labor used to produce food = 10

Thus, Country B will produce 10,000 manufacturs or 5000 food

Thus, 1 manufacture = 0.5 food

Since Adam Smith believed in the theory of absolute advantage, it would ask Country B to produce and export food.

Related Questions

Navigate

• Browse (All)
• Browse #
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.