Question

In: Economics

suppose two countries, France & Germany, use only capital and labor for production. France has 2050...

suppose two countries, France & Germany, use only capital and labor for production. France has 2050 units of capital and 916 units of labor and Germany has 816 units of capital and 270 units of labor. Both countries produce two goods, car and wine. In Germany there are 366 units of capital and 135 units of labor employed in the wine industry. In frnace, there are 926 units of capital and 618 units of labor employed in the wine industry.

1. Which country is labor-abundant? Which country is capital-abundant? Explain.

2. Which industry is labor intensive in Germany? Which industry is capital-intensive in Germany? Explain.

3. suppose that france and Germany do not engage in international trade. Assuming that the countries have identical preferences which country would have the cheaper relative price for wine. Explain.

4.Now suppose the two countries trade with one another. What will happen to the relative price of wine in france? In Germany? Explain.

5. What are the effects of free trade on wage and rental on capital in Germany? Explain.

Edit: Those units of capital and labor in the car industry is not given.

Solutions

Expert Solution

1. France is labor abundant and germany is capital abundant because the capital labor ratio in france (2050/916) is less than that in Germany. ( 816/270)

2. In Germany, there is a total of 816 units of capital out of which 366 is used is used in wine which means the rest of it i.e 816 - 366 = 450 units are used in car industry and hence car industry is more capital intensive as 450 is greater than 366. While on the other hand, there is a total of 270 units of labor or of which 135 is used in wine and rest 135 is used in car and hence both car and wine industry are equally capital intensive

3. Without free trade, relative price of wine will be cheaper in France because france is a labor abundant country and wine is a labor intensive good

4. Wine is a labor intensive good while car is a capital intensive good. France is abundant in labor and hence will produce and export wine which is labor intensive while germany which is capital abundant will produce car. Since resources are allocated efficiently in free trade, the relative price of wine will fall in both france ans germany

Rahul Sunny answered 2 years ago
Next > < Previous

Related Solutions

Use the information in the table on labor productivities in France and Germany to answer questions...
Use the information in the table on labor productivities in France and Germany to answer questions a through f.                             Output per Hour Worked    France             Germany Cheese 2 kilograms            1 kilogram Cars       0.25                    0.5 Which country has an absolute advantage in cheese? In cars? What is the relative price of cheese in France if it does not trade? In Germany? What is opportunity cost of cheese in France? In Germany? Which country has a...
EXERCISE 18.5 COMPARATIVE ADVANTAGE Suppose that there are only two countries in the world, Germany and...
EXERCISE 18.5 COMPARATIVE ADVANTAGE Suppose that there are only two countries in the world, Germany and Turkey, each with four workers. Within a given time period, each worker in Germany can produce three cars or two televisions, and each worker in Turkey can produce two cars or three televisions. Draw the feasible production frontier for each country, with televisions on the horizontal axis and cars on the vertical axis. In the absence of trade, what is the relative price of...
Consider following production possibilities for two countries Baguettes Cars Germany 1000 million 1 million France 2000...
Consider following production possibilities for two countries Baguettes Cars Germany 1000 million 1 million France 2000 million .8 million Which of the following is true? Group of answer choices France has an absolute advantage in the production of baguettes Germany has an absolute advantage in the production of both goods France has a comparative advantage in the production of cars France has an absolute advantage in the production of both goods
Capital and labor are the only two inputs for the following production process. Capital is fixed...
Capital and labor are the only two inputs for the following production process. Capital is fixed at 4 units, which costs 50 dollars each unit per day. Workers can be hired for 100 each per day. Complete the following table and plot the marginal cost (MC), average total cost (ATC), average variable cost (AVC), average fixed cost (AFC) on the same graph. The quantity of labor input Total output per day AFC AVC ATC MC    0 0 1 100...
Situation: Suppose there are two countries, Germany and India, and two goods, bicycles and textiles. Germany...
Situation: Suppose there are two countries, Germany and India, and two goods, bicycles and textiles. Germany has a resource endowment of 42,444,325 units of labor and 8,873,941 million units of capital, while India has a resource endowment of 475,090,729 units of labor and 10,299,894 million units of capital. Each bicycle requires 100 units of capital and 10 units of labor to produce, and each unit of textiles requires 40 units of capital and 2 units of labor to produce. Question:...
Situation: Suppose there are two countries, Germany and India, and two goods, bicycles and textiles. Germany...
Situation: Suppose there are two countries, Germany and India, and two goods, bicycles and textiles. Germany has a resource endowment of 42,444,325 units of labor and 8,873,941 million units of capital, while India has a resource endowment of 475,090,729 units of labor and 10,299,894 million units of capital. Each bicycle requires 100 units of capital and 10 units of labor to produce, and each unit of textiles requires 40 units of capital and 2 units of labor to produce. Question:...
Countries A and B have two factors of production, capital and labor, with which they produce...
Countries A and B have two factors of production, capital and labor, with which they produce two goods, X and Y. Technology is the same in the two countries. X is capital-intensive; A is capital-abundant. Using the standard trade model (USE GRAPHS OR EQUATIONS IF NEEDED) analyze the effects on the terms of trade and on the two countries’ welfare of the following: (PLEASE USE YOUR OWN ANSWER, EXPLAIN THOROUGHLY with graphs or equations.) (a) An increase in A’s capital...
Suppose there are two inputs in the production function, labor and capital, and these two inputs...
Suppose there are two inputs in the production function, labor and capital, and these two inputs are perfect substitutes. The existing technology permits 5 machines to do the work of 2 workers. So the production function is f(E, K) = 2K + 5E. The firm wants to produce q units of output, where q > 0 is some number. Suppose the price of capital is $10 per machine per hour. What combination of inputs will the firm use if the...
Suppose there are two inputs in the production function, labor and capital, and these two inputs...
Suppose there are two inputs in the production function, labor and capital, and these two inputs are perfect substitutes. The existing technology permits 3 machines to do the work of 2 worker. So F(E,K)=2K+3E. The firm wants to produce 60 units of output. Suppose the price of capital is $10 per machine per hour. What combination of inputs will the firm use if the wage rate is $10 or $15 or $20 per hour? What if the firm wants to...
Suppose there are two countries (a capital-abundant country and a labor-abundant country) and two goods (labor-intensive...
Suppose there are two countries (a capital-abundant country and a labor-abundant country) and two goods (labor-intensive good X and capital-intensive good Y). The two countries have identical demand for the two goods and are considering forming a free trade agreement. However, while this agreement received support from most voters in country A, many voters in country B were concerned that the agreement will likely widen income inequality in country B. Please identify which country is likely labor abundant and which...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT