In: Economics
The trading possibilities for two nations, Portugal and Italy are given below. Assume that prior to specialization and trade Italy is at position C and Portugal is at position C.
A B C D E F
Italy Loaves 30 24 18 10 6 0
Fishes 0 6 12 18 24 30
A B C D E F
Portugal Loaves 10 8 6 4 2 0
Fishes 0 4 8 12 18 20 Before specialization, the cost ratio, loaves per fishes in Italy is
18 loaves = 12 fishes |
0 loaves = 0 fishes |
1 loaf = 1 fish |
1 loaves = 2 fishes |
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Question 423 pts
A B C D E F
Italy Loaves 30 24 18 10 6 0
Fishes 0 6 12 18 24 30
A B C D E F
Portugal Loaves 10 8 6 4 2 0
Fishes 0 4 8 12 18 20
Before specialization, the cost ratio, loaves per fishes in Portugal is
1 loaf = 2 fishes |
2 loaves = 1 fish |
0 loaves = 0 fishes |
6 loaves = 8 fishes |
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Question 433 pts
Italy should specialize in.
Both loaves and fishes |
fishes |
loaves |
nothing |
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Question 443 pts
Portugal should specialize in
both loaves and fishes |
loaves |
fishes |
nothing |
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Question 453 pts
After specialization the gains to the world will gain
zero loaves and zero fishes |
0 loaves and 6 fishes |
6 loaves and 0 fishes |
18 loaves and 6 fishes |
Before specialization, the cost ratio, loaves per fishes in
Italy is
18 loaves = 12 fishes
(At C in Italy, 18 loaves = 12 fishes)
Question 423: 6 loaves = 8 fishes
(At C in Portugal, 6 loaves = 8 fishes)
Question 433: loaves
Opportunity cost of 1 loaf for Italy = Total fishes given up/Total
loaves made = 30/30 = 1 fish
Opportunity cost of 1 loaf for Portugal = Total fishes given
up/Total loaves made = 20/10 = 2 fish
So, Italy has comparative advantage in Loaves. It will specialize
in loaves.
Question 443: fishes
Portugal will have comparative advantage in fishes. It will
specialize in fishes.
Question 453: 0 loaves and 6 fishes
Total loaves produced before specialization = 18 + 12 = 30
Total fishes produced before specialization = 6 + 8 = 14
Total loaves produced after specialization = 30. So gain = 30 - 30
= 0 loaves
Total fishes produced after specialization = 20, So, gain = 20 - 14
= 6 fishes