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post #1 of 11 (permalink) Old 09-22-2009, 08:09 PM Thread Starter
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grrrr need help with homework!

I realize many of you are well out of school, but not me! anyway, I need some help in Microeconomics if anyone knows a bit about that. We're talking about the Production Possibilities Frontier and terms of trade etc. Anyway, I have a problem that's stumping me here if anyone could chime in and help me out and see if i've done something wrong here.

Problem
Assume we have only two countries in the world: Spain and Romania. Both countries can produce 2 goods: shoes and clothes. There are different population in these two countries. Spain has 20 workers, and Romania has 30 workers. The technology, measured by how much units of a good can be produced by one worker is given as a table.

Spain: 12 units of shoes per worker---8 units of clothes per worker
Romania: 5 units of shoes per worker --- 20 units of clothes per worker.
------------------------------------------------------------------------------------------------------------

I've figured out that obviously Romania has a comparative advantage over Spain in producing clothes and Spain over Romania in producing shoes.

The question that's getting me here is "What should the term of trade be in order to make both countries better off from trade?" Term of trade is expressed by the units of clothes per unit of shoes.

I get what the question is asking but can anyone help me with the info they provided?

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post #2 of 11 (permalink) Old 09-22-2009, 08:15 PM Thread Starter
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Re: grrrr need help with homework!

wait, think i got it, was anyone else thinking 5:2?

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post #3 of 11 (permalink) Old 09-22-2009, 08:31 PM
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Re: grrrr need help with homework!

12:7 ?

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post #4 of 11 (permalink) Old 09-22-2009, 08:35 PM
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Re: grrrr need help with homework!

I've never taken Microeconomics before, and I have no idea what's the correct answer, but based on what I think, this is probably how the problem is solved:



Spain produces 12 shoes and 8 clothes per worker. 20 workers in Spain produces a total of 240 shoes and 160 clothes.

Romania produces 5 shoes and 20 clothes per worker. 30 workers in Romania produces a total of 150 shoes and 600 clothes.

The average amount of items produced by both countries are 195 shoes and 380 clothes.

Spain produces more, so it would need to give 45 (240 minus 195) to Romania to have equal amount for each country.

Similarly, Romania would need to give 220 (600 minus 380).

The ratio becomes every 45 shoes from Spain for every 220 clothes from Romania = 45:220 = 9:44.



P.S. you know u spend too much time on the forums when u ask for homework help here
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post #5 of 11 (permalink) Old 09-22-2009, 08:44 PM
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Re: grrrr need help with homework!

i also go 9:44, using a different method, but not sure if its right. been a long time since econ lol
let x = shoes and y = clothes.

(20)(12x + 8y)=(30)(5x + 20y)

work it out from there.

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post #6 of 11 (permalink) Old 09-22-2009, 08:46 PM Thread Starter
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Re: grrrr need help with homework!

yes but i think i forgot to mention, both countries then produce 1 depending who has absolute advantage. So therefor, Spain will produce shoes solely, and Romania will then produce clothing. So spain can produce 240 shoes and Romania can produce 600 clothes, that's using all their workers to produce the 1 item they have advantage of. So 600:240 = 5:2

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post #7 of 11 (permalink) Old 09-22-2009, 09:14 PM
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Re: grrrr need help with homework!

aint that a polynomial or something?

algebra

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post #8 of 11 (permalink) Old 09-22-2009, 09:26 PM
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Re: grrrr need help with homework!

polynomials go like x^2 + 2x + 3 lol. everything I said, DamnLocust just said it in the form of an equation.. same exact thing.. it would turn out to 90x=440y = 9x=44y = 9shoes=44clothes



strobe media, but then the numbers spain producing 8 clothes per worker and romania producing 5 shoes per worker becomes irrelevant. one might think, maybe those numbers are there just to throw u off, and simulating realistic problems. but what if u think of it like, instead of workers producing those 8 clothes each, use the resources to produce shoes instead (from spain).. and make clothes instead of 5 shoes (from romania) ??

edit:

then u need to use shoes:clothes ratio for each country...

for spain.. 12:8 = x:160 ... x = 240 ... so spain would produce additional 240 shoes
for romania.. 5:20 = 150:y ... y = 600 ... and romania additional 600 clothes

(240+240)600+600) = 2:5 ... lol i just did more work for no reason.. FAIL!
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post #9 of 11 (permalink) Old 09-22-2009, 09:31 PM
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Re: grrrr need help with homework!

gf (economics and math double major) just confirmed 5:2 was correct


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post #10 of 11 (permalink) Old 09-22-2009, 09:41 PM Thread Starter
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Re: grrrr need help with homework!

well it wouldn't be addition because they would have absolute advantage over the other country, so they would stop production of the lesser product and raise production of their greater.

TRex thanks for asking the gf, i appreciate the confirmation!

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