Suppose that 2 hours labor and 2 units capital are required to produce 1 yard of cloth in Australia, while 1 hour labor and 3 units capital required to produce 1 pound of food in Australia. Australia has a total of 2,000 labor and 3,000 capital.

What is Australia's labor constraint?

(2 marks)

What is Australia's capital constraint?

(2 marks)

What production bundle fully employs both factors (labor and capital)?

(4 marks)

Plot the labor and capital constraint to derive the production possibility frontier (PPF) for the Australian market and show the point where the production bundle fully employs both factors of production. Clearly label the axes and the lines.

(10 marks)

Which product is labor intensive? Why?

(4 marks)

Suppose that the United States (a foreign country that trades with Australia) has a total of 4,000 labor and 2,000 capital. Which country is relatively labor abundant? Why?

(4 marks)