JNU doubt..IT

[Shefali]

Please help me with parts 2 and 3

[Anjali]

These 10,20 etc are unit labour requirements or quantity produced ?
Because post specialisation , Qb = L/20
Qw=L/ 4

[Anjali]

For 3rd take PB/Pw=3
For country A , making bread is cheaper . It's opportunity cost is 2 , less then 3 , so it pays him to make bread.
For country B , it's oppty cost is 4 , more than relative price , so he will not make bread and instead make wine.

[Shefali]

Anjali...these are quantity produced.
and how did you get pb/pw=3?pls explain..

[Anjali]

Okay then I'll try again . I just assumed it to be 3

[Anjali]

Well if its complete specialisation the , a will just make bread and b just wine . So total production should be 24 ( 20+4) . Iam not sure. Let's wait for others to comment

[Shefali]

Ok...what is complete specialization and wts the diff in the 2??

[Anjali]

No difference as such. Complete specialization is when a country produces or specializes in one particular good.

[Shefali]

oky..bt why will A make bread..i'm not getting it

[Anjali]

Shefail I just cross checked it will be wine
Take it this way
Oppty for country A ( wine v/s bread )
1 unit of wine = giving away 2 unit of bread
For B
1 unit of wine = giving away 4 unit if bread
So country A has a smaller oppty cost , so it specializes in wine !

[Anjali]

For specialization Of wine to occur in A , take relative price anywhere between 1/2 and 1/4

[Homer Simpson]

Opportunity cost of A for 1 unit of wine will be 1/2 unit of bread and for country B, it will be 1/4. So country B specializes in wine. similarly, opp cost of A in bread is 2 and for country B, its 4. so country A specializes in wine.

Prices of goods would be in between opportunity costs of two countries. So for wine, between 1/4 and 1/2 and for bread, between 2 and 4.

[Shefali]

Thanxx...
ans to part 2 is Country A would produce 20 units of wine and countrt B would produce 32 units of bread..i'm not getting how??

[Homer Simpson]

ok, these are labor hour requirements right? so i need to have total labor supply of both countries to calculate world production. otherwise, no idea how to do this!

[Anjali]

Shefali then these must be unit labour requirements. And we find the respective quantity by L/aLB or L/aLW

[Shefali]

Okk if we takre it as unit labour requirement still how do we get ans as 20??