Question
Assume the following information for South Korea and Australia in the production of TVs and iron-ore. With one unit of production (a mixture of land,
Assume the following information for South Korea and Australia in the production of TVs and iron-ore. With one unit of production (a mixture of land, labour, capital, and technology) South Korea can produce 20 TVs or 16 tons of iron-ore, whereas, Australia can produce 12 TVs or 24 tons of iron-ore. Each country dedicates a total of 1000 units of production for TVs and iron-ore. This information is reproduced in the following table:
Countries TVs Iron-ore
South Korea 20 16
Australia 12 24
i. Assume complete specialisation in which South Korea produces only TVs and Australia produces only iron-ore. What happens to total production?
ii. Explain the theories Absolute and Comparative advantage in trade. Does South Korea have an absolute, a comparative advantage, or both, in the production of TV's and why?
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