Consider two countries, A and B. Each country produces only two goods with 1,000 production units: Wine and Cheese. Country A can produce 400 bottles of wine or 200 pounds of cheese or any combination of two goods. At the same time, country B can produce 1200 bottles of wine or 300 pounds of cheese or any combination of two goods. Suppose that both countries maximize their utility when they consume wine and cheese in equal proportions.
1.
a) Absolute Advantage
b) Comparative Advantage
c) Trade-off of wine for cheese
2. Production and consumption situations in both countries before trade
3. Production and consumption situations in both countries after trade with the barter exchange rate of three bottles of wine for one pound of cheese.
All necessary elements for complete answer have been included. Please provide detailed answer in an organized manner.
Country | Wine | Cheese |
---|---|---|
Country A | 400 | :200 |
Country B | 1200 | 300 |
a) Absolute advantage---Country B has àbsolute advantage in producing both wine and cheese.
We can see the graph below-----
As we observe from the graph that PPC curvr of country B is higher than that of country A in profuction of both wine and cheese., So, vountry B has àbsolute advantage.in both goods Production.
b) Comparative Advantage---
Country A has comparative advantage in producing cheese and country B has comparative advantage in producing Wine
Explanation-----
Comparative advantage in international trade is calculated on the basis of opportunity cost of producing one good as compared to another good.
The country with lower opportunity cost , will product that good in his country.
In the example--------
*
Country | wine | cheese | Opportunity cost of producing cheese | opportunity cost of producting wine | Comparative Advantage |
---|---|---|---|---|---|
Country A | 400 | 200 | 400/200=2 | 200/400=0•5 | Wine ( lesser O.C) |
Country B | 1200 | 300 | 1200/300=4 | 300/1200=0•25 | Cheese( lesser OC) |
c) Trade off of wine for cheese-----
Country A should produce cheese and trade wine with country B and country B should produce wine and trade cheese with country A
2) Production and consumption situations in both countries without trade----
Country A was maximising its utility in producing 200 bottled of wine and 100 pounds of cheese
Country B was maximising its utility by producing 600 bottles of wine and 150 pounds of cheese
country A= 200W+100C
country B= 600W+ 150C
world output= 800W+ 250 C= 1050 ( total output)
C) Production and consumption situation after trade------+
* Country A= 0W+200C
country B= 1200w+0C
world trade= 1200 W+ 200 C= 1400( total output)
Barter exchange between both countries will be 6 bottles if wine for one pound of cheese( 1200/200=6)
Hope you understand.
Consider two countries, A and B. Each country produces only two goods with 1,000 production units:...
Consider a two countries, Portugal and England, that produce two goods, wine and cheese, with only one factor of production, Labor. In England, one unit of labor can produce 2 units of wine or 1 unit of cheese. In Portugal, one unit of labor can produce 3 units of wine or 1/2 of cheese. There are 100 units of labor in Portugal, and 100 in England. Countries share the same tastes, and there is perfect competition. 1) Fill in the...
When a country has a comparative advantage in the production of a good, it means that it can produce this good at a lower opportunity cost than its trading partner. Then the country will specialize in the production of this good and trade it for other goods.The following graphs show the production possibilities frontiers (PPFs) for Candonia and Sylvania. Both countries produce lemons and coffee, each initially (i.e., before specialization and trade) producing 18 million pounds of lemons and 9...
When a country has a comparative advantage in the production of a good, it means that it can produce this good at a lower opportunity cost than its trading partner. Then the country will specialize in the production of this good and trade it for other goods. The following graphs show the production possibilities frontiers (PPFs) for Maldonia and Sylvania. Both countries produce potatoes and tea, each initially (i.e., before specialization and trade) producing 12 million pounds of potatoes and 6...
4. Specialization and tradeWhen a country has a comparative advantage in the production of a good, it means that it can produce this good at a lower opportunity cost than its trading partner. Then the country will specialize in the production of this good and trade it for other goods.The following graphs show the production possibilities frontiers (PPFs) for Freedonia and Desonia. Both countries produce grain and sugar, each initially (i.e., before specialization and trade) producing 12 million pounds of...
ELUZU Homework ( C 3 ) When a country has a comparative advantage in the production of a good, it means that can produce this good at a lower opportunity cost than its trading partner. Then the country will specialize in the production of this good and trade it for other goods The following graphs show the production possibilities frontiers (PPP) for Freedonia and Desonia. Both countries produce potatoes and coffee, each Initially (Le., before specialization and trade) producing 12...
When a country has a comparative advantage in the production of a good, it means trading partner. Then the country will specialize in the production of this good and trade it for other goods that it can produce this good at a lower opportunity cost than ts The following graphs show the production possiblities frontiers (PPFs) for Freedonia and Sylvania. Both countries (I.e., before specialization and trade) producing 1 etter A 2 million pounds of grain and 6 million pounds...
France and Germany each produce both wine and beer. Their production possibilities are: France - 200 bottles of wine or 400 bottles of beer, and Germany 500 bottles of wine or 400 bottles of beer. A. Which country has an absolute advantage in wine production? B. Which country has an absolute advantage in beer production? C. Which country has a comparative advantage in wine production? D. Which country has a comparative advantage in beer production? E. Propose a trade agreement...
4. Specialization and trade When a country has a comparative advantage in the production of a good, it means that it can produce this good at a lower opportunity cost than its trading partner. Then the country will specialize in the production of this good and trade it for other goods The following graphs show the production possibilities frontiers (PPFS) for Freedonia and Desonia. Both countries produce lemons and sugar, each initially (.e., before specialization and trade) producing 6 million...
4. Specialization and trade When a country has a comparative advantage in the production of a good, it means that it can produce this good at a lower opportunity cost than its trading partner. Then the country will specialize in the production of this good and trade it for other goods. The following graphs show the production possibilities frontiers (PPFs) for Maldonia and Sylvania. Both countries produce grain and coffee, each initially (i.e., before specialization and trade) producing 6 million...
When a country has a comparative advantage in the production of a good, it means that it can produce this good at a lower opportunity cost that trading partner. Then the country will specialize in the production of this good and trade it for other goods. The following graphs show the production possibilities frontiers (PPFS) for Freedonia and Sylvania. Both countries produce lemons and tea, each initially (i.e., before specialization and trade) producing 24 million pounds of lemons and 12...