Suppose China and India Are Both Able to Produce Tea

question 224

Essay

Suppose China and India are both able to produce tea and cloth by only using labor.In China,it takes 1 unit of labor to produce 1 kilogram of tea and 2 units of labor to produce 1 meter of cloth.In India,it takes 2 units of labor to produce 1 kilogram of tea and 2 units of labor to produce 1 meter of cloth.
(A)Suppose China has 1,000 units of labor and India has 800 units of labor.Draw the production possibilities curve without trade for each country.
(B)Which country has the absolute advantage in tea production? Which country has a comparative advantage in tea production? Which country has a comparative advantage in cloth production?
(C)In what range would the world trading price ratio lie when these countries open up to free trade?

---

Definitions:

Equality

The state or condition of being equal, especially in status, rights, or opportunities.

Capacity Constraint

Limitations on the production capacity of a manufacturing plant, company, or economy, which can affect supply and pricing.

Binary Variable

A variable that has only two possible values, typically 0 and 1, to represent outcomes such as success/failure, yes/no, etc.

Objective Function

A mathematical function used in optimization to define the goal of the decision-making process, often involving maximizing or minimizing some quantity.