Answer to Question #158541 in Macroeconomics for Jasmine

Question

Assume that country S and T hire 2,000 unit of labour. Each country use 50% from the labour for production of agriculture goods (A) and manufacturing goods (M). Total production as shown in the following table: Country/Goods(milli on unit) Good A Good M Country S 100 400 Country T 200 500 

i. Determine the range of exchange in terms of good M for per unit good A.

ii. Determine and explain ratio of exchange good A and M the only profitable for country T. 

Answer 1

Good A Good M

Country S 100 400

Country T 200 500

1) Country S will produce 400 units of M, country T will produce 200 units of A.

If ratio of exchange is 1A:4M, and after trade country S will buy and use 100 units of good A, then country S will consume 100 units of good A only, and country T will consume 100 units of good A and 400 units of good M.