Question

Country	Pens	Pencils
Eastland	60	30
Westland	10	20

Table 3 exhibits hypothetical output possibilities for Eastland and Westland. Answer questions 13 through 15 according to Table 3.

1. Eastland wants to exchange 60 Pens with 90 Pencils.  If Westland accepts this offer:

(a)          Eastland will gain 60 Pencils or save 2 labor hours

(b)          Westland will gain 30 Pencils or saves 1 ½ labor hours

(c)          Eastland will receive all of the gains from trade. In this case, Westland is indifferent and may not be willing to trade.

(d)          Both A and B

2. Westland wants to exchange 60 Pens with 30 Pencils with Eastland:

(a)          Eastland will gain 3 labor hours

(b)          Westland will gain 2 labor hours

(c)          Westland will receive all of the gains from trade. In this case, Eastland is indifferent and may not be willing to trade

(d)          Both countries will gain 8 labor hours

3. Eastland wants to exchange 60 Pens with 120 Pencils with Westland:

(a)          Eastland will gain 3 labor hours

(b)          Westland will gain 2 labor hours

(c)          Eastland will receive all of the gains from trade. In this case, Westland is indifferent and may not be willing to trade

(d)          Both countries will gain 8 labor hours

Answer 1

The Table reveals that eastland has an absolute advantage in the the case of production of both pen and pencil,but she has a greater comparitive advantage in the production of pen.westland has a least comparitive dis advantage in the production of pencil.

1.option a is correct.

domestic exchange ratio shows that east land costs 2 pen for one pencil.if westland accept the offer eastland ganis 60 pencil since it can produce Only 30 pencils by using the same resources,which needed for producing 60 units of pen

West land try to produce pencil in which it has a least comparitive dis advantage,so it specialises in the production and export of pencils.so her gain must be terms pen

2.answer is option c

International exchange ratio tend to aproach domestic exchange ratio of east land,ie,60 pens=30 pencils.so she may be indifferent towards trade with westland,and may not be willing to trade

3.answer is option c

westland can produce 60 units of pen domesticaly by using 6L .which required to produce120 units of pencils.