(a) Which industry would you expect to be relatively labour intensive, and which capital-intensive? Why (b) Draw production possibilities frontiers for each country keeping the production of rugs in the horizontal axis and the production of robots in the vertical axis. Assuming that consumer preferences are the same in both countries, add indifference curves and relative price lines under autarky. What are the differences in the relative price of rugs between the countries under autarky? (c) Depict the optimal production and consumption bundles when Canada and India open up to trade with each other. Explain what form will the trade pattern take. (d) Does free-trade make all individuals in Canada and India better-off? Explain why or why not.

(a) Which industry would you expect to be relatively labour intensive, and which capital-intensive? Why (b) Draw production possibilities frontiers for each country keeping the production of rugs in the horizontal axis and the production of robots in the vertical axis. Assuming that consumer preferences are the same in both countries, add indifference curves and relative price lines under autarky. What are the differences in the relative price of rugs between the countries under autarky? (c) Depict the optimal production and consumption bundles when Canada and India open up to trade with each other. Explain what form will the trade pattern take. (d) Does free-trade make all individuals in Canada and India better-off? Explain why or why not.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Comparative Advantage and Absolute Advantage Analysis

The theory of absolute advantage was given by Adam Smith in the year 1776.

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Step 1: Introduction

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Step 2: Labor-intensive Industry, Capital-intensive Industry in Country C and I

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Step 3: Production Possibility Curves of Country C and Country I

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Step 4: Optimal Production and Consumption Bundles

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