Answer to Question #173166 in Microeconomics for farha

Question

a.      After several years of trade, Country A and Country B pass new laws stating that half of each country’s labour force must be used in each industry. In other words, half of Country A’s must produce good X and half must produce good Y. The same is true in Country B. Under the new laws, how many good X and good Y will Country A produce? Country B? Why?

Answer 1

Using the production possibility frontier Country A will produce 60% and country B will produce 40%.A workers are better off because they can consume more of both goods.