PLEASE ANSWER THE QUESTION WITH EVIDENCE AND EXPLANATION PLEASE USE THE COUNTRIE

Question

PLEASE ANSWER THE QUESTION WITH EVIDENCE AND EXPLANATION

PLEASE USE THE COUNTRIES (CHINA and FRANCE) AND THE GOODS (BIKES AND CARS)

China and France produce Bikes and Cars. Both goods are manufactured using only one production factor (LABOR). The following table shows the unit labor requirements for each product in each country.

BIKE

CAR

CHINA

2 Hrs.

16 Hrs.

FRANCE

8 Hrs.

8 Hrs.

NOTE: CHINA HAS 10,000 WORKERS AND FRANCE HAS 5,000 WORKERS.

QUESTIONS:

2. Suppose that, in France, the prices of Bikes and Cars are 10% and 50%, respectively.

What good are the French workers going to produce?

BIKE

CAR

CHINA

2 Hrs.

16 Hrs.

FRANCE

8 Hrs.

8 Hrs.

Explanation / Answer

French workers are going to produce bikes because opportunity costs of bikes is low. This is also going to happen due to the fact that the prices of cars exported by China’s will be lower because China has comparative as well as absolute advantage in production of cars. So France can't compete with China in case of cars(unit labour costs in China is just 2 hrs instead of 8hrs in china).

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