The unit labour requirements of the production of cotton are 2 and 3 and for wheat is 4 and 5 for Lincolnland and Smithland, respectively. Labour in Lincolnland and Smithland are taken to be 400 and 200 respectively. (i) If labour is the only factor of production and tastes and preferences of the consumers in both countries are alike and captured by U(C, W) W^4/5C^1/5, find the relative equilibrium price? Discuss as to whether there is complete specialisation at this relative price? (ii) Assume that the relative equilibrium price of cotton to wheat in the world economy is 4/5, what amount of wheat would each of the countries produce?

The unit labour requirements of the production of cotton are 2 and 3 and for wheat is 4 and 5 for Lincolnland and Smithland, respectively. Labour in Lincolnland and Smithland are taken to be 400 and 200 respectively. (i) If labour is the only factor of production and tastes and preferences of the consumers in both countries are alike and captured by U(C, W) W^4/5C^1/5, find the relative equilibrium price? Discuss as to whether there is complete specialisation at this relative price? (ii) Assume that the relative equilibrium price of cotton to wheat in the world economy is 4/5, what amount of wheat would each of the countries produce?

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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Question

The unit labour requirements of the
production of cotton are 2 and 3 and for
wheat is 4 and 5 for Lincolnland and
Smithland, respectively. Labour in
Lincolnland and Smithland are taken to be
400 and 200 respectively. (i) If labour is the
only factor of production and tastes and
preferences of the consumers in both
countries are alike and captured by U(C,
W)=W^4/5C^1/5, find the relative
equilibrium price? Discuss as to whether
there is complete specialisation at this
relative price? (ii) Assume that the relative
equilibrium price of cotton to wheat in the
world economy is 4/5, what amount of
wheat would each of the countries
produce?

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