Assuming that there are only two countries in the world, Indonesia and ROW (Rest of theWorld) which both produce Cloth (C) and Food (F) using labor as factor production. Thefollowing table shows the number of hours of work needed to produce one unit of C andF in both countries:Cloth (C)Food (F)Indonesia1 hour per meter2 hour per kgROW6 hour per meter3 hour per kg Please show the gains from trade for producers and consumers in bothcountriesCan we see a catching up (factor price) pattern for both countries

Answered: Please show the gains from trade for…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Assuming that there are only two countries in the world, Indonesia and ROW (Rest of the
World) which both produce Cloth (C) and Food (F) using labor as factor production. The
following table shows the number of hours of work needed to produce one unit of C and
F in both countries:
Cloth (C)
Food (F)
Indonesia
1 hour per meter
2 hour per kg
ROW
6 hour per meter
3 hour per kg

Please show the gains from trade for producers and consumers in both
countries
Can we see a catching up (factor price) pattern for both countries

Expert Solution

Step 1

Trade: It refers to the goods and services that the economy exports and imports. The more the country will export and import the more they can earn. When economies are indulged in trade it provides various benefits to the economy. The trade helps in getting more capital with the help of exports.

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