Question

Country A has 25,000 units of labor and can produce 2 goods, manufactures and food. A’s...

Country A has 25,000 units of labor and can produce 2 goods, manufactures and food. A’s producers take 5 units of labor to produce one unit of manufactures and 1 unit of labor to produce one unit of food. Country B has 33000 units of labor and takes 3 units to produce one unit of manufactures and 2 units to produce one unit of food. What is price of manufactures in terms of food at which A and B would respectively supply manufactures? What would B export in Adam Smith’s world? What is the amount it could supply?

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Answer #1

Answer:-

Country A has 25000 units of labor

A’s producers take 5 units of labor to produce one unit of manufactures and 1 units to produce one food unit. >> 5m+1f = 25000

Country B has 33000 units of labor

It takes 3 units of labor to produce one unit of manufactures and 2 units to produce one unit of food>> 3m+2f= 33000

Price of food in A=5/1= 5 manufactures

Price of food in B=3/2=1.5 manufactures

Yes trade would take place between A and B. B would specialize in food and A would specialize in manufactures.

B would supply 33000/2 = 16500 units of food

A would supply 25000/5 = 5000 units of manufactures

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