Question

Consider the example of trade between Taiwan and Italy described in the tables below.

Country	# of workers needed to produce 1,000 units- Scooters	# of workers needed to produce 1,000 units- Laptops
Taiwan	10 workers	4 worker
Italy	20 workers	10 workers

Total Production Before Trade

Country	Current Scooters Production	Current Laptops Production
Taiwan	10,000	25,000
Italy	5,000	10,000
Total	15,000	35,000

Suppose that each country currently has 200 workers and each decides to transfer some amount of labor toward its area of comparative advantage. Taiwan transfers 45 workers away from scooters toward producing laptops. Italy transfers 100 workers away from laptops toward producing scooters.

What will be the new total output of laptops for both countries combined?

Provide your answer below:

Answer 1

Given,

Total Production Before Trade

Country	Current Scooters Production	Current Laptops Production
Taiwan	10,000	25,000
Italy	5,000	10,000
Total	15,000	35,000

Given that Taiwan transfers 45 workes away from scooter towards laptops, then the additional production of laptops = 45 x 1000/Number of workers required to produce 1000 units of laptops in Taiwan = 45 x 1000/4 = 11,250 laptops

Therefore, the total number of laptops produced by Taiwan after shifting the workers = 25,000 + 11,250 = 36,250

Given that Taiwan transfers 100 workes away from laptops towards scooters, then the reduction in the production of laptops = 100 x 1000/Number of workers required to produce 1000 units of laptops in Italy = 100 x 1000/10 = 10,000 laptops

Therefore, the total number of laptops produced by Italy after shifting the workers = 10,000 - 10,000 = 0

Therefore, the total number of laptops produced by both countries after shifting the workers = 36,500 + 0 = 36,250

Ans: 36,250