\nImagine that two countries, Richland and Poorland, can produce just two goods, computers and coal. Assume that for a given amount of land and capita
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Imagine that two countries, Richland and Poorland, can produce just two goods, computers and coal. Assume that for a given amount of land and capital, the output of these two products requires the following constant amounts of labour:
\r\n| \r\n \r\n | \r\n\r\n Richland \r\n | \r\n\r\n Poorland \r\n | \r\n
| \r\n 1 computer \r\n | \r\n\r\n 2 \r\n | \r\n\r\n 4 \r\n | \r\n
| \r\n 100 tonnes of coal \r\n | \r\n\r\n 4 \r\n | \r\n\r\n 5 \r\n | \r\n
Assume that each country has 20 million workers.
\r\n(a) Draw the production possibility curves for the two countries (on two separate diagrams).
\r\n(b) If there is no trade, and in each country 12 million workers produce computers and 8 million workers produce coal, how many computers and tonnes of coal much will each country produce? What will be the total production of each product?
\r\n(c) What is the opportunity cost of a computer in (i) Richland; (ii) Poorland?
\r\n(d) What is the opportunity cost of 100 tonnes of coal in (i) Richland; (ii) Poorland?
\r\n(e) Which country has a comparative advantage in which product?
\r\n(f) Assuming that price equals marginal cost, which of the following would represent possible exchange ratios? (i) 1 computer for 40 tonnes of coal; (ii) 2 computers for 140 tonnes of coal; (iii) 1 computer for 100 tonnes of coal; (iv) 1 computer for 60 tonnes of coal; (v) 4 computers for 360 tonnes of coal.
\r\n(g) Assume that trade now takes place and that 1 computer exchanges for 65 tonnes of coal. Both countries specialise completely in the product in which they have a comparative advantage. How much does each country produce of its respective product?
\r\n(h) The country producing computers sells 6 million domestically. How many does it export to the other country?
\r\n(i) How much coal does the other country consume?
\r\n(j) Construct a table like Table 24.4 to show the no-trade and with-trade positions of each country?
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