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. Suppose that Country A and Country B have unit labour requirements for producingone tonne of steel and one tonne of oil shown in the following table:SteelOilUnit labour requirementsCountry A42Country B45 1. CountryadvantageA has a comparativein the production of oil.2. Country B has a comparativeadvantage in the production of steel.3. With 100 units of labor, country Acould produce a maximum of either 25units of steel or 50 units of oil.4. Country B with 100 units of laborcould produce a maximum of either 25units of steel or 20 units of oil.5. When country A uses 60% of itstotal labour units to produce steel andthe rest to produce oil, 60 labor unitsproduce steel and 40 labor unitsproduce oil. With this may labor units,country A can produce 15 units ofsteel and 20 units of oil.6. When country B uses 20% of itstotal labour units to produce steel andthe rest to produce oil, 20 labor unitsproduce steel and 80 labor unitsproduce oil. With this may labor units,country B can produce 5 units of steeland 16 units of oil.

Given that "country A has a comparative advantage in the production of oil and country B has the…

Answered: Both countries agree that one tonne of…

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.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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