Part 2: Spaghetti and Meatballs
Country
Spaghetti
Meatballs
Italy
1,500 tons
2,000 tons
Argentina
1,000 tons
1,000 tons
1.
Which country has an absolute advantage
in both products?
Italy 2.
In at least one paragraph, explain whether or not the countries should specialize in one product and trade. Make sure to use the terms opportunity cost and comparative advantage in your answer. (Don’t forget to use the economics hack to check your work!)
Italy should specialize in meatballs because they can make more meatballs than spaghetti, and, they have a lower opportunity cost for making meatballs vs making spaghetti. Italy would have to
give up producing 1500 tons of spaghetti, and their opportunity cost of producing meatballs is ¾ tons of spaghetti. If Italy produced spaghetti, their opportunity cost of producing spaghetti would be 1 ⅓ tons of meatballs which is a higher opportunity cost compared to meatballs, and therefore they should specialize in meatballs; producing meatballs has a lower opportunity cost than opportunity cost for producing spaghetti because Italy can produce more meatballs than spaghetti. By producing meatballs, Italy gives up profits they can make from making Spaghetti, but that doesn't really matter because compared to Argentina, Italy can make profits both ways, as it can make more in both products than Argentina. Additionally, it also has a comparative advantage in Meatballs, because it can produce meatballs for a lower opportunity cost than Argentina(Italy produces Meatballs for opportunity cost of ¾ tons of Spaghetti, while Argentina produces Meatballs for opportunity cost of 1 ton of Spaghetti, and since ¾ tons is less than 1 ton, Italy has the comparative advantage in meatballs)
Argentina on the other hand, doesn’t have an absolute advantage in either product. So from the absolute advantage perspective, they would be giving up one or the other if ever necessary, as either way, they would lose only 1000 tons regardless of which product they produced, as their opportunity cost is 1 ton for both products. From the perspective of comparative advantage, Argentina can produce Spaghetti for a lower opportunity cost than Italy, because Argentina produces spaghetti for an opportunity cost of 1 ton of meatballs while Italy produces spaghetti for an opportunity cost of 1 ⅓ tons of meatballs, and since 1 ton is smaller than 1 ⅓ ton, Argentina has a comparative advantage in producing Spaghetti. So, because Argentina doesn’t have an absolute advantage in either Spaghetti or Meatballs, and their opportunity cost is 1 ton 6.01 COMPARATIVE AND ABSOLUTE ADVANTAGE | Economics 3
