Question

Consider the example of trade between the United States and Thailand described in the tables below.

Country	# of workers needed to produce 1,000 units- Socks	# of workers needed to produce 1,000 units- Cell Phones
United States	5 workers	1 worker
Thailand	6 workers	3 workers

Total Production Before Trade

Country	Current Sock Production	Current Cell Phone Production
United States	9,000	45,000
Thailand	7,500	15,000
Total	16,500	60,000

Suppose that each country currently has 90 workers and each decides to transfer some amount of labor toward its area of comparative advantage. The United States transfers 10 workers away from socks toward producing cell phones. Thailand transfers 18 workers away from cell phones toward producing socks.

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

Answer 1

In the given example, US and Thailand both can produce two products socks and cell phones and have 90 workers each working to produce these two goods. It is assumed that 45 workers produce cell phones and 45 produce socks in each country.

According to the given information, 1 person can produce 1000 cell phones in the US., so 45 people will produce 45000 cell phones. Now if 10 more workers are increased for production of cell phones in this country, the total output of cell phones in US will increase by 10000 and reach 55000.

On the other hand, in Thailand 3 workers are needed to produce 1000 cell phones. So 45 workers can produce 15000 cell phones. But if 18 workers are reduced from production of cell phones, then number of workers producing cell phones in Thailand will only be 27. So the total output of cell phones in Thailand will come down to 9000.

So the new total output of cell phones of both countries combined will be 55000 (new total output of US) + 9000 (new total output of Thailand) = 64000.