Ratio of the price of meat to the price of beer

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In the US, beer and meat are the only two commodities produced and consumed. A gallon of beer requires 5 minutes of labor to produce, and a pound of meat requires 8 minutes of labor to produce. Assume that labor is the only input needed to produce beer and meat. There is a total of 123 billion hours of labor per year, and a total of 6.3 billion gallons of beer and 48 billion pounds of meat are produced each year in the US. Assume that wage is the same in the production of both goods, and the markets for the goods are both perfectly competitive.

-Within the US under autarky, what is the ratio of the price of meat to the price of beer?

-Let the ratio above be k*. Suppose that on the international market, we can trade any amount of beer for meat or meat for beer, at a ratio of k gallons of beer to 1 pound of meat. For what values of k will international trade increase the welfare in the US relative to autarky? will it be equal to k* or lesser or greater than k*?

Reference no: EM132604812

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