Suppose an hour s labour produces 10 kg of rice and 5 meter of cloth in India, and 5 kg and 2 meter in Thailand. Using opportunity costs, explain which country will export cloth and which will export rice in trade? (10 marks)
Suppose Mike and Johnson produce two products-hamburgers and T-shirts. Mike produces 10 hamburgers or 3 T-shirts a day and Johnson produces 7 hamburgers or 4 T-shirts. Assuming they can devote time in making either hamburgers or T-shirts
a. Draw the production possibility curve (2.5 marks)b. Who enjoys the absolute advantage of producing both? (2.5 marks)c. Who has higher opportunity cost of making T-shirts? (2.5 marks)d. Who has a comparative advantage in producing hamburgers? (2.5 marks)Question 3Consider two countries (Home and Foreign) that produce goods 1 (with labour and capital) and 2 (with labour and land) according to the production functions listed below (Table 1 and Table 2). Initially, both countries have the same supply of labour (100 units each), capital, and land. The capital stock in Home then grows. This change shifts out both the production curve for good 1 as a function of labour employed (Table 1) and the associated marginal product of labour curve (Table 2). Nothing happens to the production and marginal curves for good 2.
a. Show how the increase in the supply of capital for Home affects its production possibility frontier. (2.5 Marks)b. On the same graph, draw the relative supply curve for both the Home and the Foreign economy. (2.5 marks)c. If those two economies open up to trade, what will be the pattern of trade (i.e., which country exports which good)? (2.5 Marks)d. Describe how opening up to trade affects all free factors (labour, capital, land) in both countries. (2.5 marks)
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