Question

In: Economics

The trading possibilities for two nations, Portugal and Italy are given below. Assume that prior to...

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

Solutions

Expert Solution

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

Rahul Sunny answered 1 year ago
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