Use the Table 1 to answer the four questions below. Table 1 Good Home Unit Labor
ID: 1214840 • Letter: U
Question
Use the Table 1 to answer the four questions below.
Table 1
Good
Home Unit Labor Required (aLi )
Foreign Unit Labor Required (a*Li )
Relative Home Productivity Advantage (a*Li / aLi )
Apples
1
10
10
Bananas
5
40
8
Coconuts
3
12
4
Dates
6
12
2
Enchiladas
12
9
0.75
If Home wage (w) is three times Foreign wage (w*),
(1) What good or goods will Home specialize and export? [2 points]
(2) What good or goods will Foreign specialize and export? [2 points]
(3) What will Home import? What will Foreign import? [2 points]
(4) Pick any one of Home's import and explain why trade is beneficial for Home. Be sure to incorporate the three-to-one wage ratio between the two countries in your explanation. [2 points]
Good
Home Unit Labor Required (aLi )
Foreign Unit Labor Required (a*Li )
Relative Home Productivity Advantage (a*Li / aLi )
Apples
1
10
10
Bananas
5
40
8
Coconuts
3
12
4
Dates
6
12
2
Enchiladas
12
9
0.75
Explanation / Answer
Cost of Labour per unit = Wage*labour required per unit.
Good
Cost of Labour Per unit
Foreign cost of Labor per Unit
Relative Home Productivity Advantage (a*Li / aLi )
Apples
3W
10W
10
Bananas
15W
40W
8
Coconuts
9W
12W
4
Dates
18W
12W
2
Enchiladas
36W
9W
0.75
Cost of Labour per unit = Wage*labour required per unit.
1. Goods that Home will specialize and export are Apple, Banana and Coconuts. as cost per unit to produce these is less in home.
2. Goods that Foreign will specialize and export are Dates and Enchildas as they cost per unit to produce these goods is less in foreign.
3. Home will Import Dates and Enchiladas
Foreign will Import Apple , Banana and Cocconuts.
4. Let's take the case of Dates since the wage is three times in home , so the cost of producing per unit of Dates in home is 3W*6 = 18W , Whereas the cost of producing per unit of dates is 12W as W ages are equal to W in Foreign. So, Since due to wage differencial , the cost of producing Dates at home is more than cost of Producing Dates in Foreign, So, it's beneficial to import Dates.
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Good
Cost of Labour Per unit
Foreign cost of Labor per Unit
Relative Home Productivity Advantage (a*Li / aLi )
Apples
3W
10W
10
Bananas
15W
40W
8
Coconuts
9W
12W
4
Dates
18W
12W
2
Enchiladas
36W
9W
0.75
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