Problem
The governments of Australia and India have recently agreed to strengthen bilateral trade ties. Now, assume these two countries (Australia and India) and suppose that each country produces and consumes two commodities (wheat and wine). You are given the following information about the production relationship:
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Two countries, Two Goods (Output per labourer)
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|
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India
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Australia
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Wheat
|
40
|
30
|
|
Wine
|
20
|
40
|
A. Identify and explain if any of these countries have an absolute advantage in the production of wheat and wine.
B. Identify and explain if any of these countries have a comparative advantage in the production of wheat and wine.
C. Identify the patterns of trade if trades were to occur between India and Australia.
D. According to Bjorn Jarvis who is the head of the labour statistics at the Australian Bureau of Statistics (ABS): "The fall in unemployment in July, 2022 reflects an increasingly tight labour market, including high job vacancies and ongoing labour shortages, resulting in the lowest unemployment rate since August 1974". Do you agree that current Australian economy is in full employment based on the arguments by Bjorn Jarvis? Explain.