Question

In: Economics

1. Hardware (H) and Software (S) are produced in Home and Foreign, and the only input...

1. Hardware (H) and Software (S) are produced in Home and Foreign, and the only input factor is Labour (L). Home is endowed with 800 units of Labour and Foreign with 400 units. Labour productivity is as summarised in the following table:

Hardware softeware
Home 1/10 1/30
Foreign 1/40 1/20

1.Do either country have an absolute advantage and comparative advantage? If yes, for which good/goods?

2.Draw the Production Possibility curve and Indifference curve for both countries in Autarky.

3.Which goods would each country export/import?

4.How would the relative price of Hardware change when each country starts trading?

Solutions

Expert Solution

Page numbers are given at the top of the page. Follow them. In the problem I have denoted hardware by X and software by Y, and Home by H and foreign by F respectively.

Rahul Sunny answered 2 years ago
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