Absolute vs. Comparative advantage Production if 100% of time is spent on one good 1250 apples or 50 tonnes of wheat If Greta produces 1 tonne of wheat, she gives up 25 apples. If Greta produces 1 apple, she gives up 0.04 tonne of wheat. 1000 apples or 20 tonnes of wheat If Carlos produces 1 tonne of wheat, he gives up 50 apples. If Carlos produces 1 apple, he gives up 0.02 tonne of wheat. - Greta has absolute advantage in production of both crops Greta has a comparative advantage in wheat . Carlos has a comparative advantage in apples = he is least disadvantaged in production of apples. The gains from specialization Greta and Carlos choose to use 40% and 30% of her/his time, respectively, in apple production, and the rest producing wheat. 40 A = 1W Self-sufficiency Complete specialization and trade Production Trade Consumption 2 4 Greta Apples 500 0 600 Wheat 30 50 = 15 + 35 Carlos Apples 300 1,000 = 600 + 400 Wheat 14 0 15 Total Apples 800 1,000 600 1,000 Wheat 44 50 15 50Question 3 (8 marks) Consider the example of Greta and Carlos discussed in The Economy textbook Unit 1 Section 1.8 and Figure 1.9a and 1.9b. a) What is the minimum number of apples that Greta would accept in return for a tonne of wheat? What is the minimum quantity of wheat in tonnes that Greta would accept in return for 1 apple? (2 marks) b) What is the minimum number of apples that Carlos would accept in return for a tonne of wheat? What is the minimum quantity of wheat in tonnes that Carlos would accept in return for 1 apple? (2 marks) 1:) Using the concept of opportunity cost, explain the possible range of the exchange rate of apples for wheat if Greta and Carlos are to trade with each other. (2 marks) (1) Explain what might you expect to happen to the exchange rate of apples for wheat if the effects of climate change reduce Greta's maximum production of wheat to 30 tonnes. Can you be certain of this outcome in this example? (2 marks)