1. There are two countries, NZ and AUS, which use the same technology for production of food and cloth. The labour (L) and capital (K) endowments areL=100andk=60forNZ,andL-=50andK--20forAUS. Theinputs used in production in NZ and in AUS are given in the following table: NZ AUS Labour Capital Labour Capital Food aur=4 ax =3 a-u=6 8-2 Cloth alc=6 axc=5 8-LC =8 a-xc=4 Which good is capital-intensive in NZ? In AUS? Which good is labour-intensive in NZ? In AUS? Which country is labour-abundant? Which is capital-abundant? Draw the PPF curves for the two countries. Which country has a higher relative supply of cloth if the countries face the same relative price of cloth? What is the level of free trade relative price of cloth compared to the two autarky relative prices of cloth? Which country exports what? Relate the answer to the Heckscher- Ohlin Theorem. Illustrate the imports and exports. Show using indifference curves that both countries gain from trade.

1. There are two countries, NZ and AUS, which use the same technology for production of food and cloth. The labour (L) and capital (K) endowments areL=100andk=60forNZ,andL-=50andK--20forAUS. Theinputs used in production in NZ and in AUS are given in the following table: NZ AUS Labour Capital Labour Capital Food aur=4 ax =3 a-u=6 8-2 Cloth alc=6 axc=5 8-LC =8 a-xc=4 Which good is capital-intensive in NZ? In AUS? Which good is labour-intensive in NZ? In AUS? Which country is labour-abundant? Which is capital-abundant? Draw the PPF curves for the two countries. Which country has a higher relative supply of cloth if the countries face the same relative price of cloth? What is the level of free trade relative price of cloth compared to the two autarky relative prices of cloth? Which country exports what? Relate the answer to the Heckscher- Ohlin Theorem. Illustrate the imports and exports. Show using indifference curves that both countries gain from trade.

ENGR.ECONOMIC ANALYSIS

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ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Concept explainers

Cost of Production

The entire idea of the cost of production or production cost is applied corresponding, or we can say that it is related to monetary cost. Money cost refers to any money expenditure which the firm or supplier, or producer undertakes in purchasing or hiring factor of production or factor services.

Question

1. There are two countries, NZ and AUS, which use the same technology for
production of food and cloth. The labour (L) and capital (K) endowments
areL=100andk=60forNZ,and L=50andk-20forAUS. Theinputs used in production
in NZ and in AUS are given in the following table:
NZ AUS Labour Capital Labour Capital Food aLF =4 akF=3a-LF =6 8-KF=2 Cloth
alc =6 axc=5 a-Lc =8 a-xc=4
Which good is capital-intensive in NZ? In AUS? Which good is labour-intensive in
NZ? In AUS?
Which country is labour-abundant? Which is capital-abundant?
Draw the PPF curves for the two countries. Which country has a higher relative
supply of cloth if the countries face the same relative price of cloth?
What is the level of free trade relative price of cloth compared to the two autarky
relative prices of cloth?
Which country exports what? Relate the answer to the Heckscher- Ohlin Theorem.
Illustrate the imports and exports.
Show using indifference curves that both countries gain from trade.

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