Suppose That: • Malaysia Requires an Hour of Labor to Produce a Produce

Essay

Suppose that:
• Malaysia requires an hour of labor to produce a pound of rice and 2 hours of labor to
produce a pencil;
• Indonesia requires 2 hours of labor to produce a pound of rice and 3 hours of labor
to produce a pencil;
• each country has 10,000 hours of labor to allocate between the production of rice
and pencils; and
• in autarky, Malaysia consumes 5,000 pounds of rice and 2,500 pencils.
• when trade occurs, the international price of rice becomes 3/5 pencils per pound of
rice.
A) In Malaysia, what are the marginal productivities of labor in rice and pencil
production?
B) In Indonesia, what are the marginal productivities of labor in rice and
pencil production?
C) What are the autarkic prices of rice and pencils in each country?
D) In which product will each specialize?
E) What happens to wages in each country when trade occurs?