Question

Here are some hypothetical numbers used to illustrate the ideas of trade-offs, specialization, and comparative advantage. Assume Sri Lanka, using all her resources efficiently, can produce either 1,000 bags of rice OR 3,000 bags of tea. Let's also assume that, using all her resources efficiently, Kenya can produce either 1,000 bags of rice OR 1,000 bags of tea. Further, assume that the countries have similar resource endowments and that, initially, they are not trading with each other. Therefore, each of the countries has to produce both rice and tea for its citizens. Suppose that, in the no-trade situation, Sri Lanka was consuming 400 bags of rice and 1,800 bags of tea, and in the no-trade situation, Kenya was consuming 500 bags of rice and 500 bags of tea.

Now, let's play a fun game called the "Trading Game" to figure out whether there is any benefit (in terms of increased consumption possibilities) for these two countries if they trade with each other. You are given the following information to start the "Trading Game". The trading price is set at one bag of rice for two bags of tea, and Kenya wishes to keep at least 550 bags of rice after trade.

Apply your knowledge of opportunity cost to identify the comparative advantage enjoyed by each country. Now using your knowledge of specialization and trade, show in a multi-paragraph essay, that the two countries can benefit by consuming more of both goods after trade.

Develop a response that includes examples and evidence to support your ideas, and which clearly communicates the required message to your audience. Organize your response in a clear and logical manner as appropriate for the genre of writing. Use well-structured sentences, audience-appropriate language, and correct conventions of standard American English.

This is what I have so far..... Need some help developing the essay and making it longer. Help Please.

When it comes to trading in general it can be very beneficial or it can really hurt your economy. Trading in between countries can be a risky situation since it can go wrong if not done properly. On the other hand, trading, if done right can be the saving grace of a company or country in need of a product or wanting to sell something in need of a better economy.

In this particular situation, we can see how both countries produce both rice and tea for its own citizens without using any outside resources. Although these countries produce their produce, they do not have enough resources to produce a lot of it. They have very limited quantity which can really affect their economy and commerce.

Furthermore, after analyzing this example, I have come to the conclusion that it would be best if these two countries traded amongst each other. If these two countries traded with each other they would discover they'd have comparative advantage. This is given the fact that Sri Lanka a big comparative advantage when they produce 3000 bags of tea,because this is their specialty and what they have more resources of.This would mean Kenya has a big comparative advantage when they produce 1000 bags of rice because this is their specialty and what they have more resources of.

To conclude, the best option for these two countries commerce and resource wise would be to trade with each other. This will ensure they have more rice and tea bags for their citizens and the economy will not suffer since the demand will rice and there will be plenty of products to be sold and distributed all over the country.

Answer 1

In the given situation here Kenya can produce equal number of bags of rice or tea i.e 1000 bags after efficient utilisation of resources which makes it an arduous task to identify the area of specialisation.Here Comparitive Advantage can be identified on Opportunity costs basis between the two nations . The one with lower opportunity cost in a product must opt to specialise in that particular good. Now let us throw some light on the comparitive advantage in terms of opportunity cost with the help of the following table.

Country	Opportunity cost (RICE)	Opportunity cost (TEA)	Specialisation
Sri Lanka	3000/1000= 3	1000/3000= 0.33	TEA (because opportunity cost of producing tea is less than Kenya)
Kenya	1000/1000 = 1	1000/1000=1	RICE ( because opportunity cost of producing rice is less in contrast to Sri lanka )

As is evident from the table SRI LANKA specialises in TEA and KENYA specialises in RICE. The non specialised good is traded (imported) from other country. In this game of trade , the exchange rate is significant to undertake the transactions. It is told that 1 Rice bag can be exchanged for 2 Tea bags ( 1 rice bag = 2 tea bags) and Kenya wishes to keep 550 bags of rice for itself. Let us now take a stock of the after trade and before trade situation . Due to specialisation Sri lanka puts all its resources in Tea bags production. Now it produces 3000 tea bags and Kenya produces 1000 rice bags. Given the conditions , Sri Lanka consumed 1800 tea bags in no trade situation which leaves it with 1200 surplus tea bags(3000-1800) and Kenya posses surplus of 500 (1000-500)rice bags after specialisation. This surplus helps in trading and raising the revenue thereby, increasing the overall welfare of both countries. Keeping in mind the exchange rate , Kenya will exchange 450 rice bags for 900 tea bags (because 1 rice bag = 2 tea bags). This leaves SRI LANKA WITH 300 (1200-900) TEA BAGS and KENYA WITH 50(500-450) RICE BAGS. A point to be noted here is that we have only traded 450 bags of rice rather than 500 because Kenya intends to keep 550 (500 + 50) rice bags with them. This excess 50 is arranged from surplus production.

After Trade output table is as follows

Country	Rice Bags	Tea Bags
Sri Lanka	450(exports from Kenya)	1800+300 = 2100
Kenya	500+50=550	900 (exports from sri lanka)

Hence specialisation and trade is instrumental in raising the level of production by efficiently utilising the resources. It further helps to achieve economies of scale,further increasing the welfare of the country . Thus , trade is useful for both players of the game to fulfill their needs and witness a positive term or trade.

A suggestion for the introduction part - Trade was not seen as a friendly concept in earlier times and countries followed closed economy models. However, with changing time Trade came to the forefront and countries came to know about its advantages. This developed 3 sides of stories of Trade i.e A sad Story(losses from trade), A no loss no profit story and A happy story (in which trade is a win win situation). Let us analyse here what Trade and specialisation brings in its folds for us.