Question

3. Suppose that at current factor prices cloth is produced using 4 hours of labor for each acre of land and that food is produced using only 1 hour of labor per acre of land. (20') 1) Suppose that the economy's total resources are 20 hours of labor and 8 acres of land. Use a diagram to determine the allocation of resources. 2) Now suppose that the land supply increases to 16 acres. Using a diagram learned in class, trace out the changing allocation of resources. 3) Comment on the outcome for the above changes to allocation of resource among cloth and food industry 4) What main conclusion can you draw from the above exercise on the impact of factor abundance on trade pattern?

Answer 1

1) We got the below table and diagram based on the given allocation of resources.

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2) The change of allocation of resources so the numerical figures changed in the table and the output of the diagram also changed according to given information.

3) After observing the above changes in the output of the diagram, the cloth production took a number of hours compared to the food production. As per the given information, the cloth production of 4 hours equal to 1 hour of food production per acre. So, these both are very essential for all human beings and cloth took nearly 4 times more to compare with food production.

4) In general, the cloth and food are more common to do the trade in both home and international market and it had very good demand inside and outside markets. However, the cloth price is more compared to food price so if the country is concentrating more trades with another country by exports so their economy will become strong. Nowadays, these two factors of production are very important to become strong of the countries economy.