Suppose countries A and B have the industries
in the table below, with the labor requirements specified
for both countries.
Industry |
||||||
J |
K |
L |
M |
N |
P |
|
Country A |
3 |
6 |
7 |
1 |
4 |
2 |
Country B |
4 |
2 |
6 |
1 |
5 |
3 |
In the sentences 1 and 2 below, choose the correct answer.
1. If the ratio of wages in the two countries (A/B), (WA/EWB) is equal to 0.9, then country B will concentrate on producing goods
a. M, L, and K
b. L and K
c. N, P, and M
d. P, J, and N
2. If the ratio of wages is equal to 0.7, then country B will produce
a. P and J
b. only P
c. L and K
d. only K
Here,
1) Let's Assume 1 worker costs in B = B
So in A he will cost = 0.9 B
Now,
J | K | L | M | N | P | |
Country A | 2.7B | 5.4B | 6.3B | 0.9B | 3.6B | 1.8B |
Country B | 4B | 2B | 6B | B | 5B |
3B |
So country B will concentrate on producing K and L as they are less costly as from table above
Hence Answer is option b) L&K
2)
Let's Assume 1 worker costs in B = B
So in A he will cost = 0.7 B
Now,
J | K | L | M | N | P | |
Country A | 2.1B | 4.2B | 4.9B | 0.7B | 2.8B | 1.4B |
Country B | 4B | 2B | 6B | B | 5B | 3B |
So country B will concentrate on producing K as it is less costly as from table above
Hence Answer is option d) K only
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