Microeconomics
21st Edition
ISBN: 9781259915727
Author: Campbell R. McConnell, Stanley L. Brue, Sean Masaki Flynn Dr.
Publisher: McGraw-Hill Education
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Chapter 2, Problem 4DQ
To determine
The advantages of using a capital in the production process and specialization.
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Suppose that the productivity per worker in the milk and cranberry juice industries of Southland and Northland are as follows:
Output in Thousands of Litres
Milk
Cranberry Juice
Northland
6
Or
3
Sounthland
2
Or
1
a) Which country has the absolute advantage in producing milk? b) Which country has the absolute advantage in producing cranberry juice? c) Which country has the comparative advantage in producing milk? d) Which country has the comparative advantage in producing cranberry juice? e) According to the theory of comparative advantage, will there be trade? If yes, what is the direction of trade?
Greece and Finland produce and consume two goods, timber (T) and dairy product (D). Labor
is the sole factor of production in the two countries. Greece is endowed with Lº =30,000
labor hours (1. hrs) and Finland is endowed with L =15,000 labor hours (1. hrs). In Greece it
takes one (1) 1. hr to produce a ton of good (T), and one fourth (1/4) of a 1. hr to produce a ton
of good (D). In Finland, labor productivity in good (T) is twice as high as labor productivity
in good (T) in Greece, and labor productivity in good (D) is twenty-five percent (25%) lower
relative to labor productivity in good (D) in Greece.
Consumer preferences in the two countries are rigid in the sense that whatever the relative
prices of the two goods are, residents in Greece always consume three-fourths (3/4) of the
country's production, and residents in Finland consume two-thirds (2/3) of its production.
Questions
I Suppose the two countries engage in international trade, and that the international relative
price…
Greece and Finland produce and consume two goods, timber (T) and dairy product (D). Labor
is the sole factor of production in the two countries. Greece is endowed with Lº = 30,000
labor hours (1. hrs) and Finland is endowed with L =15,000 labor hours (I. hrs). In Greece it
takes one (1) 1. hr to produce a ton of good (T), and one fourth (1/4) of a 1. hr to produce a ton
of good (D). In Finland, labor productivity in good (T) is twice as high as labor productivity
in good (T) in Greece, and labor productivity in good (D) is twenty-five percent (25%) lower
relative to labor productivity in good (D) in Greece.
Consumer preferences in the two countries are rigid in the sense that whatever the relative
prices of the two goods are, residents in Greece always consume three-fourths (3/4) of the
country's production, and residents in Finland consume two-thirds (2/3) of its production.
a. What is the opportunity cost of the two goods in the two countries?
b. Derive the algebraic expression for…
Chapter 2 Solutions
Microeconomics
Ch. 2.2 - Prob. 1QQCh. 2.2 - Prob. 2QQCh. 2.2 - Prob. 3QQCh. 2.2 - Prob. 4QQCh. 2 - Prob. 1DQCh. 2 - Prob. 2DQCh. 2 - Prob. 3DQCh. 2 - Prob. 4DQCh. 2 - Prob. 5DQCh. 2 - Prob. 6DQ
Ch. 2 - Prob. 7DQCh. 2 - Prob. 8DQCh. 2 - Prob. 9DQCh. 2 - Prob. 10DQCh. 2 - Prob. 11DQCh. 2 - Prob. 12DQCh. 2 - Prob. 13DQCh. 2 - Prob. 1RQCh. 2 - Prob. 2RQCh. 2 - Prob. 3RQCh. 2 - Prob. 4RQCh. 2 - Prob. 5RQCh. 2 - Prob. 6RQCh. 2 - Prob. 7RQCh. 2 - Prob. 8RQCh. 2 - Prob. 1PCh. 2 - Prob. 2PCh. 2 - Prob. 3PCh. 2 - Prob. 4P
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