Question

Suppose there are only two factors of production, labor and capital, and two goods, cloth and bicycles. a. The UK has 50M workers and 100M units of capital. The ROW has 5B workers and 4B units of capital. Which country is relatively labor abundant?

Answer 1

Answer:

ROW

Explanation:

Given that,

UK has 50M workers and 100M units of capital.

ROW has 5B workers and 4B units of capital.

A country is labor abundant if the endowment of labor in that country relative to the other factors is greater than the other countries.

Therefore,

In UK:

= 50 workers ÷ 100M units of capital

= 0.5 workers

For every unit of capital there are 0.5 workers.

In ROW:

= 5B workers ÷ 4B units of capital

= 1.25 workers

For every unit of capital there are 1.25 workers.

Above calculations clearly shows that ROW is relatively labor abundant and UK is relatively capital abundant.