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Chapter 33: Q. 17. (page 804)
Are differences in geography behind the differences in absolute advantages?
Geography plays a most vital role in causing differences in absolute advantages.
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Are differences in geography behind the differences in absolute advantages?
France and Tunisia both have Mediterranean climates that are excellent for producing/harvesting green beans and tomatoes. In France it takes two hours for each worker to harvest green beans and two hours to harvest a tomato. Tunisian workers need only one hour to harvest the tomatoes but four hours to harvest green beans. Assume there are only two workers, one in each country, and each works 40 hours a week.
a. Draw a production possibilities frontier for each country. Hint: Remember the production possibility frontier is the maximum that all workers can produce at a unit of time which, in this problem, is a week.
b. Identify which country has the absolute advantage in green beans and which country has the absolute advantage in tomatoes.
c. Identify which country has the comparative advantage.
d. How much would France have to give up in terms of tomatoes to gain from trade? How much would it have to give up in terms of green beans?
In Japan, one worker can make 5 tons of rubber or 80 radios. In Malaysia, one worker can make 10 tons of rubber or 40 radios.
a. Who has the absolute advantage in the production of rubber or radios? How can you tell?
b. Calculate the opportunity cost of producing 80 additional radios in Japan and in Malaysia. (Your calculation may involve fractions, which is fine.) Which country has a comparative advantage in the production of radios?
c. Calculate the opportunity cost of producing 10 additional tons of rubber in Japan and in Malaysia. Which country has a comparative advantage in producing rubber?
d. In this example, does each country have an absolute advantage and a comparative advantage in the same good?
e. In what product should Japan specialize? In what product should Malaysia specialize?
Brazil can produce 100 pounds of beef or 10 autos. In contrast the United States can produce 40 pounds of beef or 30 autos. Which country has the absolute advantage in beef? Which country has the absolute advantage in producing autos? What is the opportunity cost of producing one pound of beef in Brazil? What is the opportunity cost of producing one pound of beef in the United States?
Is it possible to have a comparative advantage in the production of a good but not to have an absolute advantage? Explain
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