The paper "International Trade and Payment" is an outstanding example of a micro and macroeconomic assignment. The effect of country importing 1 bale of cotton results in to increase in the allocation of resources to wheat production (Solberg, 2006). The increase in allocation to the wheat production results in to increase in the production of wheat by 1.5 bushels. Amount of cotton consumed when Country consumes 55 bushels of wheat The country produces wheat exclusively. Therefore, having consumed 55 bushels of wheat then cotton consumed can be arrived at as shown below; Remaining wheat for export = 90-55 = 35 Million Bushels Since the term of trade is 1 bale of cotton for 1 bushel of wheat.
Therefore, cotton consumed is equaled to wheat exported. Thus cotton consumed is 35 million bales. Country gain from trade The gain represents the comparative advantage the country has by deciding to produce goods that it can produce at a lower cost than others per unit (Shamah, 2003). Therefore, gain on trade for the country can be obtained as follows; Equation: Y=X Y= x 35 =23.33 Million bales Therefore, exporting 35 million bushels of wheat and importing 35 Million bales of cotton means the country is not producing 23.33 million bales of cotton. Gain in trade = 35,000,000-23,333,333 = 11,666,667 bales of cotton Question two Pre-trade production possibility frontier of two countries having a different supply of labour and capital Australia Australia is a capital-intensive country.
The cloth is labour intensive while wheat is capital intensive. The graph is skewed to the left side since it produces more wheat than cloths (Salvatore, 2001). Kenya Kenya is labour-intensive country because it has a high supply of labour than capital. The cloth is labour intensive while wheat is capital intensive.
The graph is skewed to the right since the country can produce more clothing than wheat (Salvatore, 2001). The trade between the two countries exists since Australia can import clothes which are labour intensive i. e. scarce resource but export wheat since it produces in abundant because of excess capital.
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