Question

1. Suppose that in 2016, Australia had a working-age population of 22 million and its capital stock was $45,000 million. The corresponding figure for Malaysia was 15 million and $37,000 million. a) Which country is K-abundant and why? Which country is L-abundant and why? Show all work b) If production of cloth is L-intensive relative to production of computers, which country would export cloth, if engaged in trade. Why?

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Answer #1

(a) K for Australia, Ka = 45000 m and Lf= 22 m. This gives K/L ratio = 2045.45

For Malaysia, K/L = 37000 m/ 15 m = 2466.67

This means Malaysia has more capital per worker than Australia, hence Malaysia is K- abudant and Australia is L- abundant.

(b) Hence, Australia would produce Cloth as it is Labor Abundant.

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