Question

1. Suppose that Bahrain and Qatar both produce fish and dates. The following table shows the combinations of the goods that each country can produce in a day. Bahraine Qatare Dates (kilos) Fish(kilos) Dates(kilos) Fish (kilos) 0- 20+ 16- 124 02 62 12 22 84 0 0- 1. Who has the comparative advantage in producing dates and who has the comparative advantage in producing fish?

Explain the reason

Answer 1

1. For Bahrain, the opportunity cost of Fish is as below.

Dates	Fish	OC of D
0	8	-
1	6	-2/1=-2
2	4	-2/1=-2
3	2	-2/1=-2
4	0	-2/1=-2

For Qatar, the opportunity cost of Fish is as below.

Dates	Fish	OC of D
0	20	-
1	16	-4/1=-4
2	12	-4/1=-4
3	8	-4/1=-4
4	4	-4/1=-4
5	0	-4/1=-4

As can be seen, the opportunity cost of producing dates is more in Qatar than in Bahrain, implying that Bahrain have comparative advantage in producing dates and (conversely) Qatar have comparative advantage in producing fish (OC of dish in Bahrain would be -0.5 while in Qatar would be -0.25).

The opportunity cost of dates would be the amount of fish sacrificed to produce 1 date, which would be as
OC = 公
. The OC of dates is 2 in Bahrain and 4 in Qatar, meaning that to produce one unit of dates, Bahrain have to sacrifice 2 units of fish while Qatar have to sacrifice 4 units of fish, ie Bahrain have to sacrifice less than Qatar or it is cheaper to produce dates in Bahrain. Hence, Bahrain have comparative advantage in producing dates. Analogously, we have opportunity cost of fish would be as
OCF=
(inverse of OC of dates). In Bahrain, OC of fish is 0.5 while in Qatar, OC of fish is 0.25. Hence, fish is cheaper in Qatar, meaning that Qatar have comparative advantage in fish.

Thus, Bahrain have comparative advantage in producing dates, while Qatar have comparative advantage in producing fish.