Consider two competitive economies that have the same quantities of labor (L = 400) and capital (K = 400), and the same technology (A = 100). The economies of the countries are described by the following Cobb–Douglas production functions: North Economy: Y = A L.3K.7 South Economy: Y = A L.7K.3 Which economy has the larger total production? Explain.

Consider two competitive economies that have the same quantities of labor (L = 400) and capital (K = 400), and the same technology (A = 100). The economies of the countries are described by the following Cobb–Douglas production functions: North Economy: Y = A L.3K.7 South Economy: Y = A L.7K.3 Which economy has the larger total production? Explain.

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter28: International Trade

Section: Chapter Questions

Problem 2P

See similar textbooks

Similar questions

Consider two competitive economies that have the same quantities of labor (L = 400) and capital (K = 400), and the same technology (A = 100). The economies of the countries are described by the following Cobb–Douglas production functions: North Economy: Y = A L.3K.7 South Economy: Y = A L.7K.3 In which economy is labor's share of income larger? Explain
Points A and B on the Combined graph represent Malaysia's and Canada's production, and the red point shows the combined production of the two countries. Which of the following is a correct interpretation of points A and B? multiple choice 1Each country is using all of its resources.Malaysia is using a higher percentage of resources than Canada.Canada is using a higher percentage of resources than Malaysia.Both countries have unused resources that could increase production without a tradeoff.
An examination of the Ricardian model of comparative advantage yields the clear result that trade is (potentially) beneficial for each of the two trading partners since it allows for an expanded consumption choice for each. However, for the world as a whole the expansion of production of one product must involve a decrease in the availability of the other, so that it is not clear that trade is better for the world as a whole as compared to an initial situation of non-trade (but efficient production in each country ?
Suppose that there are two countries, the North and the South. Given the North's resources, it can produce 4 Cars in an hour or 1 unit of wheat in an hour. Given the South's resources, it can produce 1 car per hour or 4 units of wheat in an hour. Both countries have forty hours in total to produce wheat and cars. Finally, the goal of each country is to have the most possible cars and wheat, but also to always have an equal amount of each. In other words, 10 cars and 10 wheat is just as valuable as 11 cars and 10 units of wheat, or 10 cars and 11 units of wheat, but 11 cars and 11 wheat would make the country even better off. The question below relates to the PPF for the North and the South. While you do not need to turn in a graph of the PPF, they may be helpful to answer these questions. Finally, the first set of questions refers to a world where the North and South cannot trade, while the second set of questions refers to a world where they can trade. In the latter set of…
During the last 20 to 30 years, there have been a number of countries whose economies have experienced important economic expansion and development. One group of countries has been labeled the BRIC countries and the other the VISTA countries. Identify each of the nine countries and provide some insights about their economies and economic importance. The theories of absolute and comparative advantage have been offered as an economic rationale for trade between and among regions and countries. Compare and contrast the two concepts. Which of the two do you think is more important for explaining the growth in global trade during the last 25 years? Why”
Q82 One region has an absolute advantage over another region in the production of good X when... a. The first region has a larger supply of the raw materials required to produce good X. b. An equal quantity of resources can produce more of good X in the first region than in the second region. c. The opportunity cost of one unit of X is lower in the first region than in the second region. d. The first region has a more productive labour force than the second. e. There is no demand for good X in the second region
Assume there are two countries, Argentina and Brazil, which produce two goods, corn and wine. Assume that land is specific to corn, capital is specific to wine, and labor is free to move between the two industries. Assume that Brazil has a comparative advantage in corn, and Argentina has a comparative in wine. Brazil and Argentina sign a free trade agreement, and we want to study the consequences of this trade agreement.
A worker in the United States and a worker in China can each produce 1,000 pairs of jeans per week. A worker in the United States can produce 50 cell phones in a week, and a worker in China can produce 100 cell phones in a week. Answer the following questions based on this information. If each nation should specialize in producing jeans and cell phones? How many total jeans and cell phones will be produced by the two nations combined after specialization?
Using a production possibilities frontier determine how does a country's PPF change in response to the events described below. Make sure to explicit what sectors are you representing and what sort of assumption each event implies (neutral effect vs a sector biased effect). The latter follows from your assumptions on the factor intensity of the sector you are representing. 1.reducing import taxes (tariffs)on primary inputs 2.increasing the expenditure on research and development 3.the introduction of greater flexibility in labour markets(new government laws enabling easier hiring of workers) 4.increasing skilled migration into a country 5.the discovery of new mineral deposits in a country.
A producer has a comparative advantage in a good if it is the lowest opportunity cost producer of this good, even if it is not the most efficient producer of this good. True False
"The Heckscher-Ohlin Model suggests that the basis of comparative advantage lies primarily in a difference in factor endowments between countries, and that if countries enter into international trade based on that comparative advantage, they will be better off compared to other theories." Discuss this statement
Comment on the following statement: “An examination of the Ricardian model of comparative advantage yields the clear result that trade is (potentially)beneficial for each of the two trading partners since it allows for an expanded consumption choice for each. However, for the world as a whole, the expansion of production of one product must involve a decrease in the availability of the other, so that it is not clear that trade is better for the world as a whole as compared to an initial situation of non-trade (but efficient production in each country). ”