International Economics - Kufman Obstfeld - 7th edition Chapter 4 Question 2

2. Suppose that, at current factor prices, cloth is produced using 20 hours of labour per hectare of land and food is produced using only 5 hours of labour per hectare of land.

(a) Assume that the total resources of the economy are 600 labour hours and 60 hectares of land. Determine the allocation of resources using a graph.

b) Now suppose that the supply of labour increases first to 800, then to 1,000, and finally to 2,000 hours. Using a graph like the one in Figure 4-9, plot the change in resource allocation.

(c) What would happen if the supply of labour increased even more?

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