Country A has 56,000 units of labor and can produce 2 goods, manufactures and fo
ID: 462270 • Letter: C
Question
Country A has 56,000 units of labor and can produce 2 goods, manufactures and food. As producers take 7 units of labor to produce one unit of manufactures and 8 units to produce one unit of food. Country B has 66000 units of labor and takes 6 units to produce one unit of manufactures and 11 units to produce one unit of food. What is the price of manufactures in terms of food at which A and B would respectively supply manufactures? What would B export in Adam Smiths world? What is the amount it could supply?
Explanation / Answer
The price of manufactures in terms of food at which A and B would respectively manufactures is 7/8 = 0.875 and 6/11 = 0.55 respectively.
B would export manufactures, as he has a comparative advantage in producign manufactures over food.
The amount it could supply = 66000 / 6 = 11000 units