2. Suriname and Paraguay consume two goods, coffee and machines, and labour is the only input into production. The amount of labour (in hours) required to produce one unit of each good and labour endowments (L) are: Suriname Coffee (lbs.) Paraguay 4 15 Machines 3 L 1200 Let machines be the numerairesso that the price of machines is always one, so you must put coffee on the horizontal axis. a. List each country's good(s) of AA and CA, if any, and relate to each country's autarky (relative) price of coffee. b. If the size of the labour endowment (L) tripled in Paraguay, would your answer to part a. change? Why or why 500 not? For the rest of this question, use the original L. c. Using the PPF diagram, show Paraguay's complete autarky equilibrium and solve for Paraguay's production and consumption of each good if its total consumption of machines in autarky is 100. Be sure to label as many points as you can, d If the uvorld
2. Suriname and Paraguay consume two goods, coffee and machines, and labour is the only input into production. The amount of labour (in hours) required to produce one unit of each good and labour endowments (L) are: Suriname Coffee (lbs.) Paraguay 4 15 Machines 3 L 1200 Let machines be the numerairesso that the price of machines is always one, so you must put coffee on the horizontal axis. a. List each country's good(s) of AA and CA, if any, and relate to each country's autarky (relative) price of coffee. b. If the size of the labour endowment (L) tripled in Paraguay, would your answer to part a. change? Why or why 500 not? For the rest of this question, use the original L. c. Using the PPF diagram, show Paraguay's complete autarky equilibrium and solve for Paraguay's production and consumption of each good if its total consumption of machines in autarky is 100. Be sure to label as many points as you can, d If the uvorld
Chapter18: International Trade And Comparative Advantage
Section: Chapter Questions
Problem 2TY
Related questions
Question
Parts a and b please
Expert Solution
Step 1
Amount of production of both the goods in both countries can be stated as :
Number of units produced = Labor Hours required for a particular good / Labor hours available
Suriname | OC Suriname | Paraguay | OC in Paraguay | |
Coffee | 80 | = 5 Machines | 125 | = 2 Machines |
Machines | 400 | = 0.2 Coffee | 250 | = 0.5 Coffee |
Absolute Advantage refers to a country's capacity to producer relatively more/cheaper a particular good when compared to other country .
Comparative advantage refers to the ability of country to producer any goods with relatively cheaper opportunity costs .
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