Question
I'm needing help understanding the Comparative Advantage Theory and how to figure out what each party has available for consumption. For the attached problem, I
I'm needing help understanding the Comparative Advantage Theory and how to figure out what each party has available for consumption. For the attached problem, I have no issues with a. through c. but don't know how to find the last couple. I have the answers but just don't know how to get to them. Any help is appreciate!
1. There are two countries A and B. If country A chose to concentrate 100% of their resources into the production of food, they could produce as much as 100 units of food. If it chose to concentrate 100% of their resources into the production of metals, they could produce as much as 50 units of metals. On theother hand, if country B chose to concentrate 100%of theirresources into theproduction of food, they could produce as much as 50 units of food. If it chose to concentrate 100% of their resources into the production of metals, they could produce as much as 100 units of metals. Country A consumes 50 units of food and 25 units of metals. CountryB consumes 25 units of food and 50 units ofmetals.
a. Please draw the combined production possibilities curve. What is the maximum amount of food that they can consume together if they spend all of their resources in food production? What is the maximum amount of metal that theycan consume together if they spend all of their resources in metalproduction?
b. What is actual total consumption of food by these two countries? What is the actual total consumption of metal by thesecountries?
c. Whichcountryhasacomparativeadvantageintheproductionoffood?Which
country has an advantage in metal production?
d. If country A produces the first 100 units of food and country B produces the first 100 units of metal, and ifthey trade with each other, how will the combined production possibilities curve look like? If the total consumption of food afterthe trade is 125 units, how many units of metal will be available for consumption?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started