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Šubject 1: Gains from Trade Greece and Finland produce and consume two goods, timber (T) and dairy product (D). Labor is the sole factor of production in the two countries. Greece is endowed with Lº = 30,000 labor hours (1. hrs) and Finland is endowed with L =15,000 labor hours (1. hrs). In Greece it takes one (1) 1. hr to produce a ton of good (T), and one fourth (1/4) of a 1. hr to produce a ton of good (D). In Finland, labor productivity in good (T) is twice as high as labor productivity in good (T) in Greece, and labor productivity in good (D) is twenty-five percent (25%) lower relative to labor productivity in good (D) in Greece. Consumer preferences in the two countries are rigid in the sense that whatever the relative prices of the two goods are, residents in Greece always consume three-fourths (3/4) of the country's production, and residents in Finland consume two-thirds (2/3) of its production. a. What is the opportunity cost of the two goods in the two countries? b. Derive the algebraic expression for each country's Production Possibilities Curve (PPC), Of = Q (0%). j = F,G. c. Suppose the two countries engage in international trade, and that the international relative price of good (T) is 3 tons of good (D). Can there be mutually beneficial international trade between the two countries? If so, which are the patterns of comparative advantage, of production and consumption, of exports and imports between the two countries? What are the gains from trade for each country? d. Calculate the relative wage between the two countries, and briefly comment on your finding.

Šubject 1: Gains from Trade Greece and Finland produce and consume two goods, timber (T) and dairy product (D). Labor is the sole factor of production in the two countries. Greece is endowed with Lº = 30,000 labor hours (1. hrs) and Finland is endowed with L =15,000 labor hours (1. hrs). In Greece it takes one (1) 1. hr to produce a ton of good (T), and one fourth (1/4) of a 1. hr to produce a ton of good (D). In Finland, labor productivity in good (T) is twice as high as labor productivity in good (T) in Greece, and labor productivity in good (D) is twenty-five percent (25%) lower relative to labor productivity in good (D) in Greece. Consumer preferences in the two countries are rigid in the sense that whatever the relative prices of the two goods are, residents in Greece always consume three-fourths (3/4) of the country's production, and residents in Finland consume two-thirds (2/3) of its production. a. What is the opportunity cost of the two goods in the two countries? b. Derive the algebraic expression for each country's Production Possibilities Curve (PPC), Of = Q (0%). j = F,G. c. Suppose the two countries engage in international trade, and that the international relative price of good (T) is 3 tons of good (D). Can there be mutually beneficial international trade between the two countries? If so, which are the patterns of comparative advantage, of production and consumption, of exports and imports between the two countries? What are the gains from trade for each country? d. Calculate the relative wage between the two countries, and briefly comment on your finding.

Linear Algebra: A Modern Introduction
Linear Algebra: A Modern Introduction
4th Edition
ISBN:9781285463247
Author:David Poole
Publisher:David Poole
Chapter2: Systems Of Linear Equations
Section2.4: Applications
Problem 28EQ
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Subject 1: Gains from Trade Greece and Finland produce and consume two goods, timber (T) and dairy product (D). Labor is the sole factor of production in the two countries. Greece is endowed with L = 30,000 labor hours (1. hrs) and Finland is endowed with I =15,000 labor hours (1. hrs). In Greece it takes one (1) 1. hr to produce a ton of good (T), and one fourth (1/4) of a 1. hr to produce a ton of good (D). In Finland, labor productivity in good (T) is twice as high as labor productivity in good (T) in Greece, and labor productivity in good (D) is twenty-five percent (25%) lower relative to labor productivity in good (D) in Greece. Consumer preferences in the two countries are rigid in the sense that whatever the relative prices of the two goods are, residents in Greece always consume three-fourths (3/4) of the country's production, and residents in Finland consume two-thirds (2/3) of its production. a. What is the opportunity cost of the two goods in the two countries? b. Derive the algebraic expression for each country's Production Possibilities Curve (PPC), OF = Q (2). j = F,G. c. Suppose the two countries engage in international trade, and that the international relative price of good (T) is 3 tons of good (D). Can there be mutually beneficial international trade between the two countries? If so, which are the patterns of comparative advantage, of production and consumption, of exports and imports between the two countries? What are the gains from trade for each country? d. Calculate the relative wage between the two countries, and briefly comment on your finding.
Transcribed Image Text:Subject 1: Gains from Trade Greece and Finland produce and consume two goods, timber (T) and dairy product (D). Labor is the sole factor of production in the two countries. Greece is endowed with L = 30,000 labor hours (1. hrs) and Finland is endowed with I =15,000 labor hours (1. hrs). In Greece it takes one (1) 1. hr to produce a ton of good (T), and one fourth (1/4) of a 1. hr to produce a ton of good (D). In Finland, labor productivity in good (T) is twice as high as labor productivity in good (T) in Greece, and labor productivity in good (D) is twenty-five percent (25%) lower relative to labor productivity in good (D) in Greece. Consumer preferences in the two countries are rigid in the sense that whatever the relative prices of the two goods are, residents in Greece always consume three-fourths (3/4) of the country's production, and residents in Finland consume two-thirds (2/3) of its production. a. What is the opportunity cost of the two goods in the two countries? b. Derive the algebraic expression for each country's Production Possibilities Curve (PPC), OF = Q (2). j = F,G. c. Suppose the two countries engage in international trade, and that the international relative price of good (T) is 3 tons of good (D). Can there be mutually beneficial international trade between the two countries? If so, which are the patterns of comparative advantage, of production and consumption, of exports and imports between the two countries? What are the gains from trade for each country? d. Calculate the relative wage between the two countries, and briefly comment on your finding.
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