In: Economics
1. Comparative advantage in two countries and more than two
commodities.
Firstly we must express the price of all commodities in terms of
one nation's currency. Suppose there are two nations - U. S and
U.K.
There are four commodities A, B, C, D.
eg :- Pound 1 =$2
Price of A in U.S. is 2 an 12 in U.K. Price of B in U.S is 4 and 8
in U. K. Price of C is 6 in U. S and 6 in U.K. Price of D is 8 in
U.S and 4 in U.K.
Price of commodity A and B are lower in U.S than U.K. But price of
c is equal in both nation. So U.S. export commodities A and B and
import D and E commodities from U.K.
Comparitive Advantage with more than two nations
2. If there is 3 nations A, B, C and two commodities- wheat and
cloth
Rank these nation on the basis of Pw/Pc. Rank these three nations
1< Pw/Pc <3
Nation A has 1st rank, B has 2nd rank and C has 3rd rank.
Nation A export wheat to B and C in exchange of cloth.Nation B
export wheat to C in exchange for cloth.