If Blue country uses it resources to produce q-tips, it can produce 100 units. For the...

If Blue country uses it resources to produce q-tips, it can produce 100 units. For the same resources, Blue country could choose to produce 25 units of pens. For Green country, it is either 90 units of q-tips or 30 units of pens. Alright, first of all, who has the absolute advantage in q-tips, pens? Who has the comparative advantage in q-tips, pens? Should this countries trade? If so, at what “price” range?

Solutions

Expert Solution

	q-tips	pens
Blue Country	100	25
Green country	90	30

Blue country can produce either a maximum of 100 units of q-tips or 25 units of pens.

Green country can produce either a maximum of 90 units of q-tips or 30 units of pens.

Blue country has absoltue advantage in q-tips production because it can produce more q-tips than Green country.

Green country has absoltue advantage in pens productino because it can produce more pens than Blue country.

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	Opportunity cost of producing q-tips in terms of pens	Opportunity cost of producing pens in terms of q-tips.
Blue country	(25/100) = 0.25 pens	(100 /25) =4 q-tips
Green Country	(30 / 90) = 0.33 pens	(90 / 30) = 3 q-tips

Blue's country opportunity cost of producing q-tips is lower than the Green country opportunity cost of producing q-tips. Therefore, Blue country has comparative advantage in the production of q-tips.

Green 's country opportunity cost of producing pens is lower than the Blue's country oppportunity cost of producing pens. Therefore, Green country has comparaive advanatge in the production of pens.

Yes these countries shoud trade with each other.

Price range for q-tips:

0.25 pens < 1 q-tips < 0.33 pens

Price range for pens:

3 q-tips < 1 pen < 4 q-tips

Rahul Sunny answered 2 years ago

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