Exercise 05: Theory of Uneven Development
1)
World income and distribution before trade
| Country A | Country B | |||||
| Product | Man-days | Output per man-day | Total Output | Man-days | Output per man-day | Total Output |
| Wheat | 200 | 4 | 800 | 200 | 4 | 800 |
| Watches | 200 | 4 | 800 | 200 | 3 | 600 |
Which country is less efficient at producing watches? _Country B_________
(2)
World income and distribution after trade
| Country A | Country B | |||||
| Product | Man-days | Output per man-day | Total Output | Man-days | Output per man-day | Total Output |
| Wheat | 100 | 4.5 | 450 | 300 | 3.5 | 1050 |
| Watches | 300 | 4.5 | 1350 | 100 | 2 | 200 |
What happened to the wheat-producing efficiency of country A after it started to trade? _Increased_________
What happened to the wheat-producing efficiency of country B after it started to trade? _Decreased_________
How do you explain this? _Wheat production suffers from decreasing returns to scale_________
What happened to the watch-producing efficiency of country A after it started to trade? _Increased_________
What happened to the watch-producing efficiency of country B after it started to trade? _Decreased_________
How do you explain this? _Watch production benefits from increasing returns to scale_________