Reference no: EM131171282

The following statement is from the article "The Iowa Car Crop" written by Steven E. Landsburg:" David's observation is that there are two technologies for producing automobiles in America. One is to manufacture them in Detroit, and the other is to grow them in Iowa. Everybody knows about the first technology; let me tell you about the second. First, you plant seeds, which are the raw material from which automobiles are constructed. You wait a few months until wheat appears. Then you harvest the wheat, load into ships and sail the ships eastward into the Pacific Ocean. After a few months, the ships reappear with Toyotas on them. International trade is nothing but a form of technology. The fact that there is a place called Japan, with people and factories, is quite irrelevant to Americans' well-being. To analyze trade policies, we might as well assume that Japan is a giant machine with mysterious inner workings that convert wheat into cars." Please answer the following questions:

(a) We studied production functions in chapter 9 and 10. Do you find any similarities or differences? Please explain.

(b) Under what circumstances, it is efficient to use the second technology as opposed to the first one (producing cars in Detroit)?