The following table provides data on the productivity of a single unit of a resource in producing clothing and cars in both Japan and Canada.
One Unit of Resource Produces either/or but not both
Clothing (meters)
Cars
Japan
6
2
Canada
2
1
For simplicity, assume that these are the only two countries in the world, the production of each product in each country is subject to constant returns, and each country maintains full employment thanks to costless mobility of resources within the same country. Suppose Canada is endowed with 50 units of this all-purpose resource while Japan is endowed with 20 units. Answer the following questions. Justify your answers.
Suppose that, when trade between the two countries is not permissible, each country allocates half of its resource endowment to the production of one good.
a)If trade between the two countries is permissible. Which country would specialize in the production of clothing? Which country would specialize in the production of cars? Indicate the production points of each country in this case. What is the world total output of each product in this case?
The following table provides data on the productivity of a single unit of a resource in producing clothing and cars in both Japan and Canada.
|
|
One Unit of Resource Produces either/or but not both |
|
|
|
Clothing (meters) |
Cars |
|
Japan |
6 |
2 |
|
Canada |
2 |
1 |
For simplicity, assume that these are the only two countries in the world, the production of each product in each country is subject to constant returns, and each country maintains full employment thanks to costless mobility of resources within the same country. Suppose Canada is endowed with 50 units of this all-purpose resource while Japan is endowed with 20 units. Answer the following questions. Justify your answers.
Suppose that, when trade between the two countries is not permissible, each country allocates half of its resource endowment to the production of one good.
a)If trade between the two countries is permissible. Which country would specialize in the production of clothing? Which country would specialize in the production of cars? Indicate the production points of each country in this case. What is the world total output of each product in this case?
Related textbook solutions
Related questions
Draw the graph carefully. Please use one graph per country and show both the autarky and the free trade equilibrium on each graph.
Consider the following data on the factor endowments of two countries A and B:
|
Countries |
||
|
Factor Endowments |
A |
B |
|
Labor force: L |
100 workers |
50 workers |
|
Capital Stock: K |
60 machines |
10 machines |
a. Which country is relatively capital abundant? Which country is relatively labor abundant? Explain (calculate the ratios).
b. Supposing that cars are capital intensive relative to shoes, which country will have a comparative advantage in the production of cars? Of shoes? Explain.
c. Graphically demonstrate the pre-trade and post-trade equilibrium between these two countries (production and consumption points). Draw a Demand Diagonal. Find and label the trade triangles for each country.
d. Which factor gains and which factor loses when trade arises between these two countries? Explain precisely.
