Answer to Question #204680 in Microeconomics for qianhe

Question

The following table describes the production possibilities of two cities in the country of Basebalia:

 

 

Wheat per Worker per Hour Corn per Worker per Hour

Boston 6 6

Chicago 2 4

 

Without trade, what is the price of wheat (in terms of corn) in Boston? What is the price in Chicago?                                                                                                  

Answer 1

Solution:

Without trade, the price of wheat in terms of corn in Boston is equally priced. That is, wheat and corn will be equally priced since 1 worker working for an hour employed in the production of wheat are necessary to produce 6 wheat and at the same time, a similar worker can produce 6 corn. Therefore, the price of 1 wheat is the same as the price of 1 corn.

Price of wheat = $\frac{6}{6} = 1$

 

In Chicago, one wheat will cost twice as less as a pair of corn. That is the price of 1 corn will 2 pairs of wheat. This is because 1 worker working for an hour employed in the production of wheat is necessary to produce 2 wheat and at the same time a similar worker can produce 4 corn.

Price of wheat = $\frac{4}{2} = 2$