Question

7:03 PM Sun Nov 3 20% < TODO of Q + 8 0 11. Suppose initially the countries are not trading with one another, and each divides its production capacities evenly between the two industries. If they then begin to trade, how much meat will the United Kingdom need to produce in order to ensure the autarky scenario is improved upon? a. Between 0 and 5 tons b. Between 5 and 17.5 tons C. Between 17.5 and 25 tons d. Between 50 and 65 tons no- trade consumption 30 2 new 2 mear fish 2015 newz 50 CDO England meat Fish 1 England 25 50 40 30 50 100 meat Fish

The original values of the maximum of each product are in the table to the left. I need an explanation as to why the answer is B because I arrived at the answer c.

Answer 1

Opportunity cost of producing meat in New-Zealand = 30/40 = 0.75

Opportunity cost of producing fish in New-Zealand = 40/30 = 1.33

Opportunity cost of producing meat in England = 100/50 = 2

Opportunity cost of producing fish in New-Zealand = 50/100 = 0.5

Thus, New Zealand and England have comparative advantage in the production of meat and fish respectively (owing to lower opportunity costs).

Without trade, New Zealand consumes 20 meat and 15 fish whereas England consumes 25 meat and 50 fish.

With trade, New Zealand only produces 40 meat and England only produces 100 fish.

Now, trade takes place in between the range of 0.5 meat per unit of fish and 1.33 meat per unit of fish.

Out of 40 meat, New Zealand will consume 20 units and trade remaining 20 units to England. In return, it gets 15 to 40 units of fish.

Out of 100 fish, England will consume 50 units and trade remaining 50 units to New Zealand. In return, it gets 25 meat (0.5*50) to 66.67 meats (1.33*50).