EC239 Chapter Notes - Chapter 5: Opportunity Cost, Comparative Advantage, Marginal Cost
Document Summary
2 goods (food & clothes), 2 countries, 2 factors (labour & capital) Home is assumed to be labour abundant o. Cloth production is labour intensive and food production is capital intensive. Akc = capital used to produce one yard of cloth. Alc = labor used to produce one yard of cloth. Akf = capital used to produce one calorie of food. Alf = labor used to produce one calorie of food. L = total amount of labour available in home. K = total amount of capital services available in home. The two resource restraints for the economy: o o. Labour constraint: alc x qc + alf x qf l. Capital constraint: akc x qc + akf x qf k. Akc = 2; alc = 2; akf = 3; alf = 1; l = 2000; k = 3000. Labour constraint = 2qc + qf = 2000. Capital constraint = 2qc + 3qf = 3000.
