Question

Consider the following three countries. Countries can produce wheat, sheep, ore, brick, wood, etc. The output per worker is shown in the table. Countries employ the same number of workers.

	Redistan	Whitney	Blueland
wheat	1	1	2
sheep	1	2	2
ore	1	2	0
brick	2	1	3
wood	2	1	1

a. Which country has absolute advantage in wheat production?

b. Which country has a comparative advantage over brick production in terms of sheep opportunity costs?

c. The fourth country (Yellowria) proposes to pay one unit of ore for one unit of wood. Which country do you want to trade with Yellowria?

Answer 1

a. Blueland produces the maximum wheat per worker as compared to the other 2 countries. So Blueland has an absolute advantage in the production of wheat.

b. Redistan produces 2 bricks per sheep opportunity cost

Whitney produces 1 brick per 2 sheep opportunity cost. SO that is equal to 1/2 brick per sheep opportunity cost

Blueland produces 3 bricks per 2 sheep opportunity cost. So that is equal to 1.5 brick per sheep opportunity cost.

SO in terms of sheep opportunity cost, Blueland has the comparative advantage of brick production.

c) Redistan can produce 1 ore in place of 2 wood. So opportunity cost is 0.5 ore per wood

Whitney can produce 2 ore in place of 1 wood. So opportunity cost is 2 ore per wood

Blueland produces 0 ore per wood.

So from here we can see that Blueland will profit the most by getting 1 ore in place of 1 wood. So Blueland should trade with Yellowria.

If you found this helpful, please rate it so that I can have higher earnings at no extra cost to you. This will motivate me to write more.