Suppose Country A, a Labor-Abundant Country, Produces Only Wheat and Cloth

question 11

Multiple Choice

Suppose country A, a labor-abundant country, produces only wheat and cloth. The following equations illustrate the prices and costs of wheat and cloth in the country, where the numbers indicate the amounts of labor and land needed to produce a unit of wheat and cloth. 'w' is the wage rate and 'r' is the rental rate of land. Price of wheat = 1w + 2r
Price of cloth = 2w + 1r
If the initial prices of wheat and cloth are $3 per unit, the labor cost per unit of cloth output is _____ and the rental cost per unit of cloth output is _____.

• A)$3; $1
• B)$1; $2
• C)$2; $1
• D)$1; $3

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Definitions:

Future Value

The amount of money an investment will grow to over a period of time at a specified interest or growth rate.

Future Value

The estimated amount that an investment will grow to over a period of time at a specified rate of interest.

Compounded Annually

Refers to the process of earning interest on both the initial principal and the accumulated interest from previous periods, calculated once per year.

Future Value

The estimated value of an investment or loan including interest or dividends, at a specific future date.