Answer to Question #168638 in Economics for louay

Question

1. You are given the following Classical-type table showing the number of days of labor input required to obtain 1 unit of output of each of the five commodities in each of the two countries:

                                   Bread  VCR’s  Lamps    rugs  books

                                ------------------------------------------------------

United Kingdom       2 days  8 days  4 days    3 days  2 days

United States           2 days  6 days   2 days    2 days 3 days

 

 (a) Assume that the wage rate in the United Kingdom (W_uk ) is £8/day, the wage rate in the United States(W_us) is $20/day, and the exchange rate (e) is $2/£ 1. With this information, determine the goods that will be U. K. exports and the goods that will be U.S. exports.

(b) Keeping W_us at $20/day and keeping the exchange rate $2/£ 1. Calculate the upper and lower limits (in pounds per day) to the U.K. wage rate that are consistent with two-way trade between the countries.

(c) With W_uk at £8/day and W_us at $20/day, calculate the upper and lower limits (in $/£) to the exchange rate that are consistent with two-way trade between the countries

Answer 1

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