Question

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), (W_A/EW_B) 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

Answer 1

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