Question
In Isoland international trade is forbidden. The country's Minister of Economics argues that Isoland has nothing to gain from free trade, because as a cutting-edge
In Isoland international trade is forbidden. The country's Minister of Economics argues that Isoland has nothing to gain from free trade, because as a cutting-edge leader in all industries the labor productivity is higher than in the rest of the world. To underpin his view he refers to the following statistics of labor input used in the production of cars and computers:
Rest of world Isoland
Working hours per car 120 60
Working hours per computer 40 30
The population of Isoland consists of 1000 workers, each of them working 120 hours per year. Every year, each worker buys a new car, the rest of the income is spent on new computers. How many computers could a worker afford with and without free trade if you assume that Isoland is too small to have any significant effect on world prices?
Please also explain how each are used."
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