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USA Capital Labor 40 Machines 200 Workers Canada 10 Machines 60 Workers
K=Capital L=Labor USA (K/L)= 40/200 = .2 Machines per worker (L/K)= 200/40 = 5 workers per machine Canada (K/L)= 10/60 = .17 Machines per worker (L/K)= 60/10 = 6 workers per machine
Canada is relatively more abundant in labor, as they have more workers per machine. The United States of America is relatively more labor abundant in Capital, as they have more machines then they do workers. The above ratios compare capital and labor to show how close the two countries are in both capital and labor although one is better in each over the other. 2. Suppose that the USA & Canada have the factor endowment in the preceding table, Suppose further that the production requirements for a unit of steel are 2 machines and 8 workers, and the requirement for a unit of bread is 1 machine and 8 workers.
Steel Capital Labor 2 Machines 8 Workers Bread 1 Machine 8 Workers
A.Which good, bread or steel, is relatively capital-intensive? Labor-intensive? Explain. Ratio of capital to Labor in Steel(2/8) is > that in Bread(1/8). Steel is relatively more capital-intensive then bread. This is the key that will drive comparative advantage and trade. Ratios are what matters: absolute input coefficients are irrelevant. Steel(2/8) comes out to .25 which is more then Bread(1/8) as it comes out to .125. B. Which country would export bread? Why? Canada will export bread because the country is relatively labor-intensive and bread is a labor-intensive product. The United States is more capital-intensive so they will make steel as that is more capital driven to produce.