Reference no: EM13198866
1. Suppose that at current factor prices cloth is produced using 40 hours of labor for each acre of land, and food is produced using only 8 hours of labor per acre of land.
a. Suppose that the economy's total resources are 320 hours of labor and 20 acres of land. Use a diagram and some algebra to determine the allocation of resources. (It doesn't necessarily have to be to scale.)
b. Say there is a bumper crops in births for some astrological reason, and the labor force increases 10% from 320 hours to 352 hours. Amend the diagram and use similar algebra to figure out what happens again
c. What implications does this have for a country's specialization in trade if before the population boom they had exactly the same amount of resources? Assume substitutability of factors and decreasing marginal productivity of both factors, as well as homogeneous preferences across countries, and identical tech- nologies across countries. Illustrate this idea with a graph.
2. Let's use cloth and food, with inputs of labor and land, with cloth the labor intensive industry. If the relative price of food increases in the 2 good HO economy, what happens to the relative utilization of the labor in the production of food? What about in the production of cloth? If applicable, illustrate this relationship with graphs, and if there is an effect, explain the mechanism by which these relative uses are changed. What implications does this have for the welfare of different groups in society?
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: Say there is a bumper crops in births for some astrological reason, and the labor force increases 10% from 320 hours to 352 hours. Amend the diagram and use similar algebra to figure out what happens again.
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