Question

In: Economics

Nation 1 can produce Y tons of product A per worker per day and Z tons...

Nation 1 can produce Y tons of product A per worker per day and Z tons of product B per worker per day. Nation 2 can produce G tons of A per worker per day and H tons of product B per worker per day (Y, Z, G, H are numbers of your choice). A. Which nation has an absolute advantage in A? and in B?j B. In Nation 1, what is the opportunity cost of A (in terms of B)? What is the opportunity cost of B? C. In Nation 2, what is the opportunity cost of A (in terms of B)? What is the opporunity cost of B? D. Which nation has a comparative advantage in A? Why? B? Why? E. If the nations choose to trade, what is one potentially mutally agreeable price for A? For B?

Solutions

Expert Solution

Let,

Y = 10

Z = 7.5

G = 2.5

H = 5

So,

Nation 1 can produce 10 tons of product A per worker per day and 7.5 tons of product B per worker per day.

Nation 2 can produce 2.5 tons of product A per worker per day and 5 tons of product B per worker per day.

Production of each product per worker per day is higher in Nation 1 in comparison to Nation 2.

When a nation can produce greater quantity of good using same set of resources relative to other nations, it is said to have absolute advantage in production of such good.

So,

Nation 1 has absolute advantage in production of Good A. Nation 1 also has absolute advantage in production of Good B.

(B)

Using 1 worker per day, Nation 1 can produce either 10 tons of A or 7.5 tons of B.

So,

The opportunity cost of producing A is (7.5/10) 0.75 tons of B.

The opportunity cost of producing B is (10/7.5) 1.33 tons of A.

(C)

Using 1 worker per day, Nation 2 can produce either 2.5 tons of A or 5 tons of B.

So,

The opportunity cost of producing A is (5/2.5) 2 tons of B.

The opportunity cost of producing B is (2.5/5) 0.5 tons of A.

(D)

A nation has comparative advantage in production of that good which it can produce at lower opportunity cost relative to other countries.

Nation 1 can produce Good A at lower opportunity cost relative to nation 2.

So, Nation 1 has comparative advantage in A.

Nation 2 can produce Good B at lower opportunity cost relative to nation 1.

So, Nation 2 has comparative advantage in B.

Rahul Sunny answered 1 year ago

Next > < Previous

Related Solutions

Nation A can produce with one worker per day 10 cakes or 5 pizzas. Nation B...

Nation A can produce with one worker per day 10 cakes or 5 pizzas. Nation B can produce with one worker per day 8 cakes or 2 pizzas. i. Determine a trade agreement for 1 pizza (price in terms of x number of cakes for 1 pizza) that both countries would benefit from. (Do not give me a range of prices. Just give me one price and one price only.) (Hint: who will be buying and who will be selling...

Assume that workers in Bulgaria and the U.K. can produce the following (in tons per worker...

Assume that workers in Bulgaria and the U.K. can produce the following (in tons per worker per year): U.S. production/ consumption before trade U.S. Production after specialization US consumption after specialization US Gains from trade Mexico production/ consumption before trade Mexico production after specialization Mexico consumption after specialization Mexico Gains from trade Crops Bulgaria 4 U.K. 10 Machines OR 8 OR 10 a) Which country’s producers have an absolute advantage in producing (a)crops, and (b) machines? Explain. b) Which country’s...

Assume that an American worker can produce 5 cars per year of 10 tons of grain...

Assume that an American worker can produce 5 cars per year of 10 tons of grain per year, whereas a Japanese worker can produce 15 cars per year or 5 tons of grain per year. Assume labor is the only input used in car and grain production. a) Which country has the absolute advantage in producing cars? In producing grain? Briefly explain. b) For the United States, what is the opportunity cost of producing a car? What is the opportunity...

Suppose a worker in Germany can produce 56 computers or 280 tons of grain per month....

Suppose a worker in Germany can produce 56 computers or 280 tons of grain per month. Suppose a worker in Poland can produce 100 computers or 300 tons of grain per month. a. Graph the PPF/PPC for each country on one graph. b. What is the opportunity cost of a computer in Germany? _________ c. What is the opportunity cost of a computer in Poland? ________ d. What is the opportunity cost of a ton of grain in Germany? ______...

An American worker can produce either 5 cars or 9 tons of grain a year. A...

An American worker can produce either 5 cars or 9 tons of grain a year. A Japanese worker can produce either 3 cars or 9 tons of grain a year. To keep things simple, assume that each country has 100 million workers. Complete the following table with the number of workers needed to make one car or 1 ton of grain in the United States and Japan. Workers Needed to Make 1 Car 1 Ton of Grain United States 1/5...

An American worker can produce either 5 cars or 8 tons of grain a year. A...

An American worker can produce either 5 cars or 8 tons of grain a year. A Japanese worker can produce either 4 cars or 9 tons of grain a year. To keep things simple, assume that each country has 100 million workers. Complete the following table with the number of workers needed to make one car or 1 ton of grain in the United States and Japan. Workers Needed to Make 1 Car 1 Ton of Grain United States Japan...

Malaysia can produce 20 tons of fish or 5 tons of rice per month. Thailand can...

Malaysia can produce 20 tons of fish or 5 tons of rice per month. Thailand can produce 25 tons of fish or 20 tons of rice per month. a) Assuming both countries are using the same amount of capital and labor, which country has the absolute advantage in producing fish? In producing rice? b) What is the opportunity cost of producing one ton of fish for Malaysia? For Thailand? Show work. c) What is the opportunity cost of producing one...

A sugar refinery can produce x tons of sugar per week at a weekly cost of...

A sugar refinery can produce x tons of sugar per week at a weekly cost of 0.1x^2 +9x+1210 dollars. Find the level of production for which the average cost is at a minimum and determine the average cost and marginal cost at that level of production.

Canadian and Japanese workers caneach produce 4 cars per year. A Canadian worker can produce...

Canadian and Japanese workers can each produce 4 cars per year. A Canadian worker can produce 10 tonnes of grain per year, whereas a Japanese worker can produce 5 tonnes of grain per year. To keep things simple, assume that each country has 100 million workers.a. For this situation, construct a table like what we had in the class.b. Graph the production possibilities frontier of the Canadian and Japanese economies.c. For Canada, what is the opportunity cost of a car?...

German worker can produce 8 kilos of ham OR 12 plastic chairs a day. A Canadian...

German worker can produce 8 kilos of ham OR 12 plastic chairs a day. A Canadian worker can produce 10 kilos of ham a day OR 8 plastic chairs a day. Assume trade and specialization are voluntary. a) Who will be the exporter of ham? Who will be the exporter of plastic chairs? You must justify your answer with calculations, otherwise no marks will be awarded. b) Would a price of 1 Ham per Plastic Chair be acceptable to both...

Subjects