Question

Suppose the United States and Mexico both produce hamburgers and tacos. The combinations of the two goods that each country can produce in one day are presented in the table below Mexico Hamburgers in tons) Hamburgers in tons) Tacos (in tons) .888 Which country has an absolute advantage in producing tacos? Which country has a comparative advantage in producing tacos? Suppose the United States is currently producing 120 tons of hamburgers and 30 tons of tacos and Mexico is currently producing 12 tons of hamburgers and 30 tons of tacos. If the United States and Mexico each speciale in producing only one good the good for which each has a comparative advantage then a total of additional tons of hamburgers can be produced for the two countries combined for a numeric response using an integer) and a total of additional ton(s) of tacos can be produced

Answer 1

a) Given the above table, clearly United States has an absolute advantage in the production of Tacos. This is because the US is able to produce more Tacos at every level.

b) From the given table, the opportunity cost fo producing Tacos at every level (given by the number of Hamburgers foregone) is lower for Mexico and the opportunity cost for producing Hamburgers (given by the number of Tacos foregone at each level) is lower for United States.

Thus, Mexico has a comparative advantage in the production of Tacos.

c) Now given, US produces 120 Hamburgers and 36 Tacos and Mexico produces 12 tons of hamburgers and 30 Tacos.

Total hamburgers produced = 132 tons and total Tacos prodcued = 66 tons.

If the two countries pecialize based on comaprative advantage, Mexico will produce only Tacos and US will produce only Hamburgers.

Thus, total Hamburgers produced = 180 and total Tacos produced = 90

Clearly, gains from trade = 48 Hamburgers and 24 Tacos. (Ans.)