Question
In: Economics
The following table shows how many tonnes of dairy products and beef products can be produced...
The following table shows how many tonnes of dairy products and beef products can be produced in Country 1 and Country 2 with one unit of equivalent resources.
|
Dairy Products (tonnes) |
Beef Products (tonnes) |
|
|
Country 1 |
7 |
28 |
|
Country 2 |
35 |
28 |
a. Which country has an absolute advantage in dairyproducts? In beef products? Explain.
Whoever is able to produce
▼
more
less
with the same amount of resources has the absolute advantage of producing that product.
▼
Country 2
Neither
Country 1
has the absolute advantage in dairy production.
▼
Neither
Country 1
Country 2
has the absolute advantage in beef production.
b. What is the opportunity cost of producing an extra tonne of dairy products in Country 1? In Country 2?
The opportunity cost of producing an extra tonne of dairy products in Country 1 is
nothing
tonne(s) of beef products. The opportunity cost of producing an extra tonne of dairy products in Country 2 is
nothing
tonne(s) of beef products.
(Round your responses to two decimal places.)
What is the opportunity cost of producing an extra tonne of beef products in Country 1? In Country 2?
The opportunity cost of producing an extra tonne of beef products in Country 1 is
nothing
tonne(s) of dairy products. The opportunity cost of producing an extra tonne of beef products in Country 2 is
nothing
tonne(s) of dairy products.
(Round your responses to two decimal places.)
c. What is the pattern of comparative advantage between these two countries?
▼
Country 2
Country 1
has the comparative advantage in dairy production because it has a
▼
lower
higher
opportunity cost.
▼
Country 2
Country 1
has the comparative advantage in beef production because it has a
▼
lower
higher
opportunity cost.
d. Assume that both countries have 100 units of equivalent resources. On a scale diagram with beef products on the horizontal axis and dairy products on the vertical axis, draw each country's production possibilities boundary.
Use the line drawing tool to plot each country's production possibilities boundary on a scale diagram at right. Label the lines properly.
Carefully follow the instructions above, and only draw the required objects.
e. What is the interpretation of the slope of the production possibilities boundary?
The slope of the production possibilities boundary indicates the
▼
opportunity costs
total costs
. The difference in the slopes of the production possibilities boundaries reflects differences in
▼
absolute advantage
comparative advantage
. The country which has the curve with the greater slope, steep production possibilities boundary, indicates the opportunity cost of producing dairy is
▼
less than
greater than
the other country.
Solutions
Expert Solution
a) Absolute Advantage:
Absolute advantage is the ability of a country to produce a good or service at a lower per unit cost as compared to any other country that produces same good or service.
Country 2 has an absolute advantage in the dairy products.
Neither country has an absolute advantage in beef products.
b) Country 1:
7 dairy products = 28 beef products
1 dairy product = 28/7 = 4 beef products
Opportunity cost of 1 dairy product is 4 beef products.
Country 2:
35 dairy products = 28 beef products
1 dairy product = 28/35 = 4/5 = 0.8 beef products
Opportunity cost of 1 dairy product is 0.8 beef products.
c) Country 2 has comparative advantage in the production of dairy products because it has lower opportunity cost.
Country 1 has comparative advantage in the production of beef products because it has lower opportunity cost.
d)
e) 1) Opportunity costs
2) comparative advantage
3) less than
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