Consider the following productivities in Table 1:

TABLE 1: ZAMBIA- MALAWI TRADE PATTERNS

Services Manufacturing

Zambia 2 Units/hr. 6 Units/hr.

Malawi 6 Units/hr. 3 Units/hr.

a)Calculate the opportunity cost of services in the Zambia and Malawi(1 Mark)

b)Calculate the opportunity cost of manufacturing in the Zambia and Malawi. Which country has the comparative advantage in services? (1 Mark)

c)Suppose that the average price of Services is ZMW 20 per unit and the average price of manufacturing is ZMW 20.What trade pattern will emerge? What will wages be in Malawi and Zambia? (2 Marks)

d)Suppose that the inflation rate in Malawi is 3% while the inflation rate in Zambia is 5%.How is your answer in (c) affected? (1 Mark)