Consider two neighboring island countries, Ambrosia and Doporia. Each has 72,000 labor hours avallable per week that it can use to produce wheat jeans, or a combination of both. The following table shows the amount of labor hours required to produce 1 bushel of wheat or 1 pair of Jeans. Wheat Jeans Country (Labor hours per bushel) (Labor hours per pair) Ambrosia 36 12 Doporia 30 has an absolute advantage in the production of wheat, and has an absolute advantage in the product of jeans. Initially, suppose Ambrosia uses 18,000 hours of labor per week to produce wheat and 54,000 hours per week to produce jeans, while Doporia uses 54,000 hours of labor per week to produce wheat and 18,000 hours per week to produce jeans. Assume there are no other countries willing to trade goods, so in the absence of trade between these two countries, each country consumes the amount of wheat and jeans it produces. Ambrosia's opportunity cost of producing 1 bushel of wheat is Is of jeans, and Doporia's opportunity cost of producing 1 bushel of whea of jeans. Therefore, has a comparative advantage in the production of wheat, and has a comparat advantage in the production of jeans. When neither country specializes, the total production of wheat is ] bushels per week, and the total production of Jeans i | pairs per week. Suppose that Ambrosia completely specializes in the production of the good in which it has a comparative advantage, producing only that good. It produce Suppose also that Doporia does not specialize and uses 18,000 hours of labor to produce wheat a 54,000 hours of labor to produce jeans. It will produce |bushels of wheat and[ |pairs of jeans.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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a)(Doporla, Nelther country, Ambrosia) has an absolute advantage in the production of wheat, and (Doporla, Nelther country, Ambrosia) has an absolute advantage in the production of jeans.

b)Ambrosia’s opportunity cost of producing 1 bushel of wheat is (1/3 pair, 1/5 pair, 3 pair, 5pair) of jeans, and Doporia’s opportunity cost of producing 1 bushel of wheat is (1/3 pair, 1/5 pair, 3 pair, 5pair) of jeans. Therefore, (Ambrosia, Doporla) has a comparative advantage in the production of wheat, and (Ambrosia, Doporla) has a comparative advantage in the production of jeans.

c)When neither country specializes, the total production of wheat is ( ) bushels per week, and the total production of jeans is ( ) pairs per week.

d)Suppose that Ambrosia completely specializes in the production of the good in which it has a comparative advantage, producing only that good. It will produce ( ) (Pairs of jeans, bushels of wheat). Suppose also that Doporia does not specialize and uses 18,000 hours of labor to produce wheat and 54,000 hours of labor to produce jeans. It will produce ( ) bushels of wheat and ( ) pairs of jeans.

3. Absolute and comparative advantage
Consider two nelghboring island countries, Ambrosla and Doporia. Each has 72,000 labor hours avallable per week that it can use to produce wheat,
Jeans, or a combination of both. The following table shows the amount of labor hours required to produce 1 bushel of wheat or 1 pair of jeans.
Wheat
Jeans
Country
(Labor hours per bushel)
(Labor hours per pair)
Ambrosia
36
12
Doporia
30
6
has an absolute advantage in the production of wheat, and
has an absolute advantage in the production
of jeans.
Initlally, suppose Ambrosla uses 18,000 hours of labor per week to produce wheat and 54,000 hours per week to produce jeans, while Doporia uses
54,000 hours of labor per week to produce wheat and 18,000 hours per week to produce jeans. Assume there are no other countries willing to trade
goods, so in the absence of trade between these two countries, each country consumes the amount of wheat and jeans it produces.
Ambrosla's opportunity cost of producing 1 bushel of wheat is
v of jeans, and Doporia's opportunity cost of producing 1 bushel of wheat
is
of jeans. Therefore,
has a comparative advantage in the production ofr wheat, and
v has a comparative
advantage in the production of jeans.
When neither country specializes, the total production of wheat is
|bushels per week, and the total production of jeans is
pairs per week.
Suppose that Ambrosia completely specializes in the production of the good in which it has a comparative advantage, producing only that good. It wilI
produce
v. Suppose also that Doporia does not specialize and uses 18,000 hours of labor to produce wheat and
54,000 hours of labor to produce jeans. It will produce
bushels of wheat and
pairs of jeans.

Definition Video Definition Ability of a country to produce more output with a given level of input or to produce the same level of output with a lower level of input as compared to the other countries. For example, if Country A produces 200 units with the help of 10 units of labor, and Country B produces 300 units with 10 units of labor, Country A has an absolute advantage in the production of the good. Video

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