Q. 4 In Germany, it takes three worke... [FREE SOLUTION]

Chapter 33: Q. 4 (page 803)

In Germany, it takes three workers to make one television and four workers to make one video camera. In Poland, it takes six workers to make one television and workers to make one video camera.
(a) Who has the absolute advantage in the production of televisions? Who has the absolute advantage in the production of video cameras? How can you tell?
(b) Calculate the opportunity cost of producing one additional television set in Germany and in Poland. (Your calculation may involve fractions, which is fine.) Which country has a comparative advantage in the production of televisions?
(c) Calculate the opportunity cost of producing one video camera in Germany and in Poland. Which country has a comparative advantage in the production of video cameras?
(d) In this example, is the absolute advantage the same as comparative advantage, or not?
(e) In what product should Germany specialize? In what product should Poland specialize?

Short Answer

Expert verified

(a) Germany has an absolute advantage in the production of televisions and the production of video cameras.

(b) The opportunity cost of producing an additional television in Germany is 4/3 and the opportunity cost of producing an additional television in Poland is 2. Poland has a comparative advantage in production of televisions.

(c) The opportunity cost of producing an additional video camera in Germany is 3/4 the opportunity cost of producing an additional video camera in Poland is 1/2.

Germany has a comparative advantage in the production of video cameras.

(d) In the given example, absolute advantage is not the same as comparative advantage.

(e) Poland should specialize in the production of television and Germany should specialize in the production of video camera.

Step by step solution

Step 1. Meaning of Absolute Advantage.

Absolute advantage is when one country can use fewer resources to produce a good compared to another country.

Step 2. Meaning of Opportunity Cost.

The forgone benefit that would have been derived from an option not chosen is the opportunity cost.

Step 3. Meaning of Comparative Advantage.

Comparative Advantage is the ability of the given country to produce a specific commodity at a lower cost than their competitors while considering the opportunity cost.

Step 4. Part (a). The absolute advantage.

Germany has an absolute advantage in the production of televisions and the production of video cameras as it takes fewer workers to produce in Germany than in Poland.

Step 5. Part (b). The opportunity cost in the production of television.

The opportunity cost of producing an additional television in Germany is 4/3 and the opportunity cost of producing an additional television in Poland is 2.

Poland has a comparative advantage in production of televisions.

Step 6. Part (c). The opportunity cost in the production of a video camera.

The opportunity cost of producing an additional video camera in Germany is 3/4 the opportunity cost of producing an additional video camera in Poland is 1/2.

Germany has a comparative advantage in the production of video cameras.

Step 7. Part (d). Are absolute advantage and comparative advantage the same.

In the given example, absolute advantage is not the same as comparative advantage.

Step 8. Part (e). Specialization of products.

Poland should specialize in the production of television and Germany should specialize in the production of a video camera.

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