Both countries agree that one tonne of steel can be exchanged for one tonne of oil. Calculate the gains after trade is allowed if Country A consumes 30 tonnes of oil domestically.
Both countries agree that one tonne of steel can be exchanged for one tonne of oil. Calculate the gains after trade is allowed if Country A consumes 30 tonnes of oil domestically.
Economics: Private and Public Choice (MindTap Course List)
16th Edition
ISBN:9781305506725
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Chapter25: The Supply Of And Demand For Productive Resources
Section: Chapter Questions
Problem 9CQ
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Question
1. Both countries agree that one tonne of steel can be exchanged for one tonne of oil. Calculate the gains after trade is allowed if Country A consumes 30 tonnes of oil domestically.
Transcribed Image Text:Suppose that Country A and Country B have unit labour requirements for producing
one tonne of steel and one tonne of oil shown in the following table:
Steel
Oil
Unit labour requirements
Country A
4
2
Country B
4
5
Transcribed Image Text:1. Country
advantage
A has a comparative
in the production of oil.
2. Country B has a comparative
advantage in the production of steel.
3. With 100 units of labor, country A
could produce a maximum of either 25
units of steel or 50 units of oil.
4. Country B with 100 units of labor
could produce a maximum of either 25
units of steel or 20 units of oil.
5. When country A uses 60% of its
total labour units to produce steel and
the rest to produce oil, 60 labor units
produce steel and 40 labor units
produce oil. With this may labor units,
country A can produce 15 units of
steel and 20 units of oil.
6. When country B uses 20% of its
total labour units to produce steel and
the rest to produce oil, 20 labor units
produce steel and 80 labor units
produce oil. With this may labor units,
country B can produce 5 units of steel
and 16 units of oil.
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