PLEASE ANSWER THE QUESTION WITH EXPLANATION China and France produce Bikes and C
ID: 1131181 • Letter: P
Question
PLEASE ANSWER THE QUESTION WITH EXPLANATION
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.
QUESTION TO BE ANSWERED:
Find the wage level in each country and the cost per hour of each good in each country. Using the cost per hour, explain the cost advantage of China and France.
Note: Verify that the global relative price of Bike (Car) is between the opportunity costs of Bike (Car)).
BIKE
CAR
CHINA
2 Hrs.
16 Hrs.
FRANCE
8 Hrs.
8 Hrs.
Explanation / Answer
Answer - According to the given information, China has 10,000 workers. 2 hours (workers) needed in order to produce one bike. On the other hand China can produce one car by using 16 hours (workers). There is not trade between China and France. China produces and consumes 500 cars.
China devoted labor into production of car = 500*16
China can produce 500 cars if it use 8000 worker in the production of cars.
Now, remaining workers (10000 - 8000 = 2000) will produce bikes in China.
China will produce bikes = 2000 / 2
China will produce and consumes 1000 bikes by using 2000 hours (workers).
If opportunity costs of France are equal to that of China. In that case both have comparative advantage in cars i. e car takes less than 2 hours in China and less than 8 hours in France. I had made one mistake while answering your earlier question. [Actually China will produce cars(because it has comparative advantage in bikes I. E takes only 2hrs to produce instead of 16 hrs in case of cars) , not France and France will produce cars because it has comparative advantage in cars]
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