Question

Instruction: Use Table A representing hypothetical production capacities of two economies in answering the following questions. Assume that there are only 2 laborers in each country that works exactly 1 hour only. If each laborer (e.g. 1 laborer in each good) in each country works 1 hour in producing wine and bread, the output per country are as follows: A) Without Specailization/Pre-trade Country/Good Wine /hour or labor Bread /hour of labor Philippines 12 8 20 USA 10 1. Who has absolute advantage in producing both goods? 2. What is the opportunity cost of Bread per unit of wine in each country? (Hint: How much wine unit should I forgo to produce one unit of bread in each country?) 3. Who has a lower opportunity cost in producing wine? How about food? (Comparative advantage) 4. Now, suppose that each country specializes in producing the good where it has comparative advantage in (i.e. devotes all of its laborers in producing the good where it has comparative advantage) what will be the new output table of the 2 countries? Complete the table below. With specialization Country/Good Wine /hour or labor Bread /hour of labor Philippines USA

Answer 1

more a looth aods uSA can Praduce d with Same laaor hown Then us has avo soute advamtage in producing tn goods Philippines County P) cam produc wir 12 ine 8 bread n an Wowi. m an howe amd Tham n eaivan* to 8 bread 2 wrine bread 72 Hemce Or bread On tnu other nand opportu nit Cost of bread n 3 wine in P. cost of produneing 20 wine (1 noun) is eaual to cost of rodmed ng to bread. 'n bread othex hamd, that 3n us of wine in The OC 20 Y2bread On tne OT 2wine bread n of Tha ppertunity cost taole n summariged 3 . Bread Wine P uSA 2. usA has o owe Them from tnis dable P.has OPportunity cost 'm wine ama mBread . ower opportunity cost has comparatire adv. m wine Bread 4. us produc wine in lalborers 2 Them ama in P Pro duee omy bread. Total pr duction tawle n: read Wine P O 40 dsA A