Answered: Countries A and B are both producers of…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Countries A and B are both producers of wine and sausages. The table below shows their respective capacities for production of each of these goods should they devote all their resources to either good 1 (wine) or good 2 (sausages).

With reference to relevant theories of trade (absolute advantage/relative advantage), explain which country should concentrate on production of which good(s).

Country A:
wine 10,000
sausages 20,000

Country B:
wine 6,000
sausages 10,000

Country
A
B
1. Wine
(hectolitres)
10,000
6,000
2. Sausages
(,000 units)
20,000
10,000

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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