Comparative Advantage There are two countries in the world. There are also only two different types...

Comparative Advantage

There are two countries in the world. There are also only two different types of goods produced, food and clothing. Each country has the same amount of “inputs” (i.e. labor, capital, raw materials, etc.), which amounts to 100,000 units of input. Below is a chart that lists out how many units of output each country could create if they created just one type of good. For example, if Country A produced ONLY food, then with 100,000 units of input they could produce 300,000 pounds of food.

Country	Clothing (yards)	Food (lbs)
A	180,000	300,000
B	240,000	900,000

Which country has the relative comparative advantage of producing food? Why?

Which country has the relative comparative advantage of producing clothing? Why?

Ignoring the numbers in the above chart (i.e. think conceptually) if the slope for country B’s food production is steeper than country A’s food production, then which country has the relative comparative advantage in producing food?

Options

1. If you strongly believe the market is about to go down, which option should you buy or sell?

2. Use the below information to calculate your profit/loss if you own a long call and the option just matured (reached its expiration): Spot: 99 Strike: 100 Call premium: $3  

Expert Solution

jeff jeffy answered 1 year ago

Comparative Advantage There are two countries in the world. There are also only two different types...

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Comparative Advantage There are two countries in the world. There are also only two different types...

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