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:

Question

Quizplus · Accepted Answer

When Argentina transfers 2 units of labor from wine to cloth, it loses the ability to produce 4 units of wine (since 1 unit of labor produces 2 units of wine) but gains the ability to produce 40 units of cloth (since 1 unit of labor produces 20 units of cloth). When Chile transfers 1 unit of labor from cloth to wine, it loses the ability to produce 24 units of cloth but gains the ability to produce 12 units of wine. The net increase in combined output is therefore an increase of 8 units of wine (12 gained in Chile minus 4 lost in Argentina) and 16 units of cloth (40 gained in Argentina minus 24 lost in Chile).

Assume That One Day's Labor in Argentina Can Produce Either