Consider an economy that has a labor endowment of L= 40 units. The production functions are x = 0.5L, and y = 4Ly, where x and y are consumption goods while L, and Ly represent the labor allocation. What is the equation for the PPF? O 8x+y=160 O 6x + 2y = 80 O 6x + y = 120 8x+2y=80
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- Consider an economy that has a labor endowment of L = 40 units. The production functions are x = 0.5L, and y = 4Ly, where x and y are consumption goods while L, and Ly represent the labor allocation. What is the equation for the PPF? 8x + y = 160 6x + 2y = 80 6x + y = 120 8x + 2y = 80Consider an economy that has a labor endowment of L = 40 units. The production functions are x = 0.5Lx and y = 4Ly, where x and y are consumption goods while Lx and Ly represent the labor allocation. What is the equation for the PPF?Suppose two economies Home (H) and Foreign (F) produce two goods, bread and wine, with only one production factor: labour. Production technology, expressed as marginal product of labour (MPL), is given in the following table: Technologies expressed as MPL Bread Wine Home 1/6 1/12 Foreign 1/4 1/2 Suppose that Home has 2400 units of labour and Foreign has 1800 units of labour. a. ) Derive the Production Possibilities Frontier (PPF) and the Consumption Possibility Frontier (CPF) for Home and Foreign, with bread on the horizontal axis and wine on the vertical axis. What is the autarky equilibrium price of bred relative to wine in each country? b.) What country has the absolute advantage in producing each good? What country has the comparative advantage in producing each good? Briefly explain the difference between these two concepts. Suppose both countries are now free to trade. The world relative price of bread is 1. c. What is the pattern of specialisation and trade?…
- Assume an economy producing only two goods (shoes and computers) with a fixed amount of productive resources and technology and employing all its productive resources to the maximum.Production in this economy is subjected to the law of diminishing marginal returns and resourcesare assumed to be fully optimized. In addition, the cost of sacrificing shoes for computers andvice versa is 1. On the basis of the foregoing assumptions, answer the following questions: What happens to the PPF when the economy discovers an improved technology for producing shoes?Suppose there are two countries that are identical in their factor endowments. Both would like to consume both passenger cars and commercial vehicles, industries in which there are economies of scale. In the absence of trade, each country would have both industries. If they could trade, both could benefit by specializing and taking advantage of economies of scale to lower their costs of production. Assume that once trade becomes possible, country A specializes in producing passenger cars and country B specializes in producing commercial vehicles. Because of economies of scale, the cost of passenger cars relative to commercial vehicles is lower in country A than in country B. Explain why we would expect to observe trade in similar products, known as intra- industry trade, when production technology is characterized by economies of scales? Who are the winners and losers in this example? How does your result compare with that of the winners and losers in the CORE textbook example of the…Suppose there are two countries, Home and Foreign, that produce two goods, fish (F) and edamame (E), using only labor. In the Home country 6 units of labor are required to produce each unit of fish and the same for each unit of edamame. In the Foreign country, 2 units of labor is required to produce each fish and 3 units of labor are required for each unit of edamame. Each country has a labor force of 30 units available for production. Suppose further that consumers in both countries have identical Leontief preferences, utility function U(CF, CE) = min(CF, CE), meaning that they want to consume the two goods in a fixed proportion of one-to-one, i.e. CF = CE (there is no substitution between the goods). Suppose now that the labor force of the Home country is 6 times as big (i.e. 180 units, instead of 30). How does this increase in labor force at Home change the pattern of trade? Will the gains from trade for the Home country be higher or lower now? What happens to the welfare of the…
- Suppose China can produce two goods, cloth and food and has three factors of production labor (L), capital (K) and Land (T for terrain). Food is produced using land and labor while cloth is produced using capital and labor, hence, labor is a mobile factor. Keeping in mind the Specific Factors Model, answer the following questions a) What are the production functions for cloth and food? b) Write down the wage equations for each sector and the slope of the production possibility frontier. c) Drive the production possibility frontier for China [hint 4 quarter diagram]Q32 Consider the Production Possibility Frontiers of two countries, Australia and Brazil. Assume both have linear PPFs and the two countries both produce the same two goods: fruits and grain. Given its resources, Australia can produce either 2 units of grain per day or 1 unit of fruits; Brazil can produce either 5 units of grain or 4 units of fruits. (You may, for your own use, find it helpful to draw the Production Possibilities Frontiers for each country, though these won't be included in the answers you provide in you online responses.) a. If there were no trade, what would be the local price of fruits in each country, measured in units of grain? b. If trade is allowed, which country will export fruits and which country will export grain (if any)? c. What are the gains from trading a unit of fruit if the international price of fruit is equal to the average of the local prices in the two countries? d. How are the gains from trade distributed? Comment on why the benefits…Q2. Suppose that there are two countries (A and B) and two goods (a labor-intensive good X, textile, and a capital-intensive good Y, electronics). The two countries have identical demand for the two goods but different labor and capital endowments. Suppose (Px/Py)A < (Px/Py)B in autarky. Identify the capital-abundant country and the labor-abundant country, respectively. Use a PPF-indifference-curve graph to identify the autarky equilibrium for country B. In the same graph, show country B's gains from trade when the two countries trade at a level of Px/Py that is between the two countries' autarky price ratios. In the above graph, identify the trade triangle (including export and import quantities) for country B. What would be the effect of trade on country B's relative nominal wage rate, i.e., the ratio of nominal wage rate relative to nominal capital rental rate (w/r)? Illustrate your answer graphically. Your answer:
- Consider a world composed of two countries, Home (H) and Foreign (F). Individuals living in each countryi = H, F have preferences over two goods x and y.In each country there is only one factor of production, labour, which is perfectly mobile between industries butimmobile between countries. The total labour endowment at Home is LH = 10 and the total labour endowmentin Foreign is LF = 10.The marginal product of labour in each industry is constant. At Home, one worker can produce 2 units ofgood x or 1 unit of good y per unit of time; at Foreign one worker can produce 1 unit of good x or 2 units of goody per unit of time.Assume that consumers in Home and Foreign always consume goods x and y in the same quantity regardlessof their prices. That is, Cxi = Cyi, i = H, F. A. Derive the production possibilities frontier (PPF) for Home and Foreign and plot it in a graph with good x inthe horizontal axis and good y in the vertical axis.Consider a world composed of two countries, Home (H) and Foreign (F). Individuals living in each countryi = H, F have preferences over two goods x and y.In each country there is only one factor of production, labour, which is perfectly mobile between industries butimmobile between countries. The total labour endowment at Home is LH = 10 and the total labour endowmentin Foreign is LF = 10.The marginal product of labour in each industry is constant. At Home, one worker can produce 2 units ofgood x or 1 unit of good y per unit of time; at Foreign one worker can produce 1 unit of good x or 2 units of goody per unit of time.Assume that consumers in Home and Foreign always consume goods x and y in the same quantity regardlessof their prices. That is, Cxi = Cyi, i = H, F D. Determine the optimal consumption and production at Home and Foreign under autarky. Depict this situationin a graph that includes each country’s PPF and indifference curves for the representative consumer. E. Assume…Consider a world composed of two countries, Home (H) and Foreign (F). Individuals living in each countryi = H, F have preferences over two goods x and y.In each country there is only one factor of production, labour, which is perfectly mobile between industries butimmobile between countries. The total labour endowment at Home is LH = 10 and the total labour endowmentin Foreign is LF = 10.The marginal product of labour in each industry is constant. At Home, one worker can produce 2 units ofgood x or 1 unit of good y per unit of time; at Foreign one worker can produce 1 unit of good x or 2 units of goody per unit of time.Assume that consumers in Home and Foreign always consume goods x and y in the same quantity regardlessof their prices. That is, Cxi = Cyi, i = H, F F. Suppose that the equilibrium price of good x (keeping the price of good y as 1) is equal to 1. Determine the optimal production and consumption both at Home and Foreign when they open up to trade. Depict this in graph.