Suppose That: • Malaysia Requires an Hour of Labor to Produce a Produce

question 110

Essay

Suppose that:
• Malaysia requires an hour of labor to produce a pound of rice and 2 hours of labor to
produce a pencil;
• Indonesia requires 2 hours of labor to produce a pound of rice and 3 hours of labor
to produce a pencil;
• each country has 10,000 hours of labor to allocate between the production of rice
and pencils; and
• in autarky, Malaysia consumes 5,000 pounds of rice and 2,500 pencils.
• when trade occurs, the international price of rice becomes 3/5 pencils per pound of
rice.
A) In Malaysia, what are the marginal productivities of labor in rice and pencil
production?
B) In Indonesia, what are the marginal productivities of labor in rice and
pencil production?
C) What are the autarkic prices of rice and pencils in each country?
D) In which product will each specialize?
E) What happens to wages in each country when trade occurs?

• A) In Malaysia, what are the marginal productivities of labor in rice and pencil
• production?
• B) In Indonesia, what are the marginal productivities of labor in rice and
• pencil production?
• C) What are the autarkic prices of rice and pencils in each country?
• D) In which product will each specialize?
• E) What happens to wages in each country when trade occurs?

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Definitions:

Accumulated Depreciation

The total amount of depreciation expense that has been reported in accounting periods up to the current date for an asset, reducing its book value.

Depreciation Expense

The systematic allocation of the cost of a tangible asset over its useful life, reflecting wear and tear, obsolescence, or age.

Book Value

The net value of a company's assets found on its balance sheet, calculated as total assets minus intangible assets (patents, copyrights) and liabilities.

Prepaid Insurance

Prepaid insurance refers to insurance premiums that have been paid in advance and are recorded as a current asset on the company's balance sheet until the period the insurance coverage relates to occurs.