Question

Assume that one day's labor in Argentina can produce either 20 units of cloth or 2 units of wine, while in Chile one day's labor can produce either 24 units of cloth or 12 units of wine. If Argentina transfers 2 units of labor from wine to cloth and Chile transfers 1 unit of labor from cloth to wine, the increase in combined output by those two workers will be: A. 16 wine; 8 cloths B. 16 wine; 16 cloths C. 12 wine; 12 cloths D. 8 wine; 16 cloths

Answer 1

(D). 8 Wine, 16 Cloth

Explanation:

Cloth production by Argentina = 20 units

Wine production by Argentina = 2 units

Cloth production by Chile = 24 units

Wine production by Chile = 12 units

Now,

2 units of labor was transferred by Argentina from Wine to Cloth and 1 unit of labor was transferred by Chile from Cloth to Wine.

Therefore,

Increase in Cloth production = Argentina's total cloth produced - Cloth produced by Chile (before transfer)

Now,

We can say that total cloth produced by Argentina is = 2 x 20 = 40 units

So,

Increase in Cloth production = 40 - 24 = 16 units

Therefore, the increase in Cloth Production is 16 units.

Similarly,

Increase in Wine production = Chile's total Wine produced - Wine produced by Argentina (before transfer)

Now,

We can say that total Wine produced by Chile is = 1 x 12 = 12 units

Wine produced by Argentina before transfer = 2 x 2 = 4 units

So,

Increase in Wine production = 12 - 4 = 8 units

Therefore, the increase in Wine Production is 8 units.

Hence, the correct option is (D).