1. Suppose, salt is produced by 5 units of labor and 1 unit of capital, whereas pepper is produced by one unit of labor and one unit of capital. If the Indian economy has 50 units of capital and 110 workers, answer the following questions: 
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3. i. Draw the production set. 
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5. ii. Is it possible to employ both capital and labor fully in the pre-trade situation?
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7. iii. What level of output will generate the maximum employment level? What is the level of maximum employment? 
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9. iv. What will be the pre-trade equilibrium price ratio if consumers like to consume textiles and computers in the fixed ratio 1:2? What output levels should the economy produce? Now suppose the US economy has 100 units of capital and 240 workers. When trade opens up between the US and India, consider the after-trade scenario. 
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11. v. What will be the pattern of trade?
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13. vi. Will the pattern of trade be consistent with the factor abundance of countries?

Answer rating: 100% (QA)

i Drawing the production set To draw the production set we can use the following steps Label the xaxis as Capital and the yaxis as Labor Draw two isoquants one for each good salt and pepper An isoquan... View the full answer