Question

Use the information in the table below to answer the following questions.

Production per unit of Labor

                        U.S.                 Argentina

Wheat              100                  200

Beef                200                  400

Does either country have an absolute advantage in the production of wheat or beef? Explain.

(b)        What is the opportunity cost of wheat in each country?

(c)        What is the opportunity cost of beef in each country?

(d)        Analyze comparative advantage and opportunities for trade between the U.S. and Argentina.

Unit labor Requirements

                        Cloth               Widgets

Home              100                  200

Foreign            60                    30

Given the information in the table above. If these two countries trade these two goods with each other in context of the Ricardian model of comparative advantage, what is the lower limit for the price of cloth?

Given the information in the table above. What is the opportunity cost of Cloth in terms of Widgets in Foreign?

It is argued that global trade tends to be more important to countries with smaller economies than the U.S. Is this empirically verified?

Answer 1

1. (a)

	Production per unit of labor
	U.S	ARGENTINA
Wheat	100	200
Beef	200	400

Because in the table above,it is given the production per unit of labor. Therefore, the country which produces more of the commodity , that country has the absolute advantage for the that good. Here in the table above, Argentina has the absolute advanatge in both wheat and beef because Argentina's labor productivity is higher than U.S labor productivity in both goods.

(b) Opportunity cost of wheat in U.S = 200/100 units of Beef = 2 units of Beef.

Opportunity cost of wheat in Argentina = 400/200 units of Beef= 2 units of Beef.

(c) Opportunity cost of Beef in U.S = 100/200 units of Wheat = 0.5 units of wheat.

Opportunity cost of Beef in Argentina = 200/400 units of Beef = 0.5 units of wheat.

(d) Neither the U.S nor Argentina has a comparative advantage in either of the good , wheat or Beef. Therefore, There is no opportunity of beneficial trade and so, no gains from trade.