2. The following table represents autarkic (time 1) and free trade (time 2) production and consumption of
Question:
2. The following table represents autarkic (time 1) and free trade (time 2) production and consumption of two goods on the Planet Vulcan: Starships and Phasers. It also shows the amount of capital and labor used in the production of each good. Use the information contained in the table to answer the following questions
Autarky | Free-Trade | |
Starships | ||
Production of Starships | 100 units | 200 units |
Consumption of good Starships | 100 units | 100 units |
Capital used to produce Starships | 100 units | 300 units |
Labor used to produce Starships | 150 days | 200 days |
Phasers | ||
Production of Phasers | 1000 units | 500 units |
Consumption of Phasers | 1000 units | 2000 units |
Capital used to produce Phasers | 200 units | 100 units |
Labor used to produce Phasers | 100 days | 50 days |
a. How many units of which product is exported and imported?
b. Based on your answer in a. above and the information in the table, is Vulcan a capital or labor abundant planet? Why?
c. Going from Autarky to free trade, has the marginal product of capital in the Starship production sector increased or decreased? Why?
d. Which Theorem accounts for the change in total capital between autarky and free trade? What does this theorem predict will happen with this change? Does the information in the table support this prediction?
e. With the aid of a graph, show what happens to the economy wide demand for labor and capital (L/K) when this country moves from autarky to free trade. Hence, show what happens to the wage to rental ratio and labor to capital ratios in both sectors.