Question 1 Consider two countries, Home and Foreign, that each produce two goods, an agricultural product...

 

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Question 1 Consider two countries, Home and Foreign, that each produce two goods, an agricultural product and a manufacturing product. Each country in endowed with a specific amount of labor and has a unit labor requirement for producing each product. Home is endowed with 900 units of labor, and Foreign is endowed with 600 units of labor. The unit labor requirements are given as: Unit Labor Requirement for Agricultural Product Unit Labor Requirement for Manufacturing Product HOME aA=0.25 ам-0.75 FOREIGN aA=0.20 aM=0.80 Part (i): Which country has the comparative advantage in the production of the agricultural product? A. Home B. Foreign Part (ii): Which country has the comparative advantage in the production of the manufacturing product? A. Home B. Foreign Part (iii): If these countries were to specialize and engage in trade, which country would produce and export each good? A. Home will produce both goods. B. Foreign will produce both goods. C. Home will produce the agricultural good, and Foreign will produce the manufacturing good. D. Foreign will produce the agricultural good, and Home will produce the manufacturing good. Part (iv): Technological improvement and capital accumulation in a particular sector leads the unit labor requirement to fall in that particular sector, and such changes to the productivity of workers could ultimately affect comparative advantages and the direction of trade. In which two sectors (of the four presented in the table above) could a reduction in the unit labor requirement flip the comparative advantages? Explain your answer. Question 1 Consider two countries, Home and Foreign, that each produce two goods, an agricultural product and a manufacturing product. Each country in endowed with a specific amount of labor and has a unit labor requirement for producing each product. Home is endowed with 900 units of labor, and Foreign is endowed with 600 units of labor. The unit labor requirements are given as: Unit Labor Requirement for Agricultural Product Unit Labor Requirement for Manufacturing Product HOME aA=0.25 ам-0.75 FOREIGN aA=0.20 aM=0.80 Part (i): Which country has the comparative advantage in the production of the agricultural product? A. Home B. Foreign Part (ii): Which country has the comparative advantage in the production of the manufacturing product? A. Home B. Foreign Part (iii): If these countries were to specialize and engage in trade, which country would produce and export each good? A. Home will produce both goods. B. Foreign will produce both goods. C. Home will produce the agricultural good, and Foreign will produce the manufacturing good. D. Foreign will produce the agricultural good, and Home will produce the manufacturing good. Part (iv): Technological improvement and capital accumulation in a particular sector leads the unit labor requirement to fall in that particular sector, and such changes to the productivity of workers could ultimately affect comparative advantages and the direction of trade. In which two sectors (of the four presented in the table above) could a reduction in the unit labor requirement flip the comparative advantages? Explain your answer.

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part i Total production with given labour endowments ... View the full answer