Chapter 4, Problem 1SQ

To determine

Explain the relative labor or capital abundancy of two countries.

Explanation of Solution

The capital labor ratio of the US can be calculated as follows:

$\begin{array}{c}\text{Capital labor ratio}=\frac{\text{Capital avilable in the US}}{\text{Labor avilable in the US}}\\ =\frac{40}{200}\\ =\frac{\text{1}}{5}\end{array}$

The capital labor ratio of Canada can be calculated as follows:

$\begin{array}{c}\text{Capital labor ratio}=\frac{\text{Capital avilable in Canada}}{\text{Labor avilable in Canada}}\\ =\frac{10}{60}\\ =\frac{\text{1}}{6}\end{array}$

The larger capital labor ratio means that the country is rich in capital, and it is more capital abundant. Here, the capital labor ration of the US is greater than that of Canada. Thus, the capital-abundant country is the US and labor-abundant country is Canada because of the higher labor capital ratio.