The production possibility frontier for Brazil depicts the maximum outputs of clothing and soda that the country can produce simultaneously with given combination of inputs as well as other factors of production. Ideally, the production possibility frontier shows the optimal production points of the economy at any point for the two products. Point E in the graph below denotes the optimal production point for both products. Additionally, the slope of the graph at point E reflects the marginal rate of transformation in Brazil. This denotes the rate at which the production of clothing can transform into the production of soda. Ideally, it shows Brazil can only produce 50 units of clothing by giving up the production of 25 units of soda as well as producing 25 units of soda by reducing the production of clothing by 50 units.
Similarly, the production possibility frontier of the United States shows all the optimal production points for both clothing and soda within a given set of factors of production and other inputs required. These factors include labor, capital, and technology required for the production of the two products. Point B in the graph below represents the marginal rate of transformation in the United States. In particular, it represents the opportunity cost of producing one commodity over another in the country. For example, United States can produce 125,000 units of soda by giving up the production of 25,000 units of clothing thereby redirecting the resources towards the production of soda.
Labor Intensive Good
This refers to a commodity that requires more of labor as a factor in its production as compared to other factors of production (LIN, 2011). These goods mainly have variable costs because labor is always variable. As a result, the producing firms do not have full control of the price charged since it fluctuates over time depending on the costs of labor in the market. Ideally, the production of the good requires large quantities of human efforts other than capital. These goods include agricultural products like fruits from trees, restaurant products, as well as mining goods. Labor-intensive goods have the disadvantage of limited economies of scale because of the proportional costs of labor towards the amount required to make the commodity (LIN, 2011). Furthermore, susceptibility in the labor market affects the labor-intensive good production.
Marginal Rate of Transformation Impact (MRT)
Labor Abundant Country
This refers to an economy endowed with more labor as a factor of production when compared to other countries (Suranovic, 2010). Endowment in labor can be approached in two ways, the quantity definition which refers to the quantity of labor that a country has when compared to the quantity available in other economies. On the other hand, labor endowment is the form of price definition. This refers to the price of labor when compared to prices in other countries. Therefore, a country that is endowed with more labor regarding price and quantity when compared to others is labour-intensive (LIN, 2011).
Capital Abundant Country
A country is capital abundant if is endowed with more capital as a factor of production in comparison with its peers. Furthermore, abundance in capital, like labor, is given in terms of both price and quantity (Suranovic, 2010). Therefore, a country which s endowed in either or both as compared to others is referred as capital abundant. In most cases, the production means these economies tend to rely on capital rather than labor efforts. For example, the production means are run more by machines and technology than human capital (Suranovic, 2010).
Benefits of Trade to Developing Countries
Finally, involvement in international trade plays a great role in poverty reduction in developing economies because trading activities enhance growth through new commercial opportunities and investment levels. The investment and commercial activities broaden the production sector and hence improving the living standards of the developing nations like Brazil (Suranovic, 2010). In addition, international trade expands the available business opportunities for local firms. As a result, new job opportunities arise for the locals and hence improving the average per capita in the country that therefore reflects a decline in poverty levels (Suranovic, 2010).
References
LIN, J. Y. (2011). Economic development in resource-rich, labor-abundant economies | Let's Talk Development. Retrieved from http://blogs.worldbank.org/developmenttalk/economic-development-in-resource-rich-labor-abundant-economies
Suranovic, S. M. (2010). International trade: Theory and policy. Irvington, NY: Flat World Knowledge, Inc.
