New Zealand in one year can raise 75 tons of beef or produce 750 boxes of tulips. Inthe same growing season, Belgium can raise 40 tons of beef or produce 650 boxes oftulips. From this information, we know that:A) New Zealand has a comparative advantage in raising beef.B) New Zealand has a comparative advantage in raising tulips.C) Belgium has a comparative advantage in raising beef.O D) Belgium has an absolute advantage in raising beef.

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Description: New Zealand in one year can raise 75 tons of beef or produce 750 boxes of tulips. Inthe same growing season, Belgium can raise 40 tons of beef or produce 650 boxes oftulips. From this information, we know that:A) New Zealand has a comparative advant

Answer: Given, Beef (tons) Tulips (boxes) New Zealand 75 750 Belgium 40 650 Let us first…

Answered: New Zealand in one year can raise 75…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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New Zealand in one year can raise 75 tons of beef or produce 750 boxes of tulips. In
the same growing season, Belgium can raise 40 tons of beef or produce 650 boxes of
tulips. From this information, we know that:
A) New Zealand has a comparative advantage in raising beef.
B) New Zealand has a comparative advantage in raising tulips.
C) Belgium has a comparative advantage in raising beef.
O D) Belgium has an absolute advantage in raising beef.

Expert Solution

Step 1

Answer:

Given,

	Beef (tons)	Tulips (boxes)
New Zealand	75	750
Belgium	40	650

Let us first find the opportunity costs for both the goods for both the countries;

Opportunity cost (OC) of Beef for New Zealand: if New Zealand produces 75 tons of beef then it has to sacrifice the production of 750 boxes of tulip.

$O C_{b e e f} = \frac{U n i t s s a c r i f i c e d o f t u l i p}{U n i t s p r o d u c e d o f b e e f} O C_{b e e f} = \frac{750}{75} O C_{b e e f} = 10$

Opportunity cost (OC) of Beef for Belgium: if Belgium produces 40 tons of beef then it has to sacrifice the production of 650 boxes of tulip.

$O C_{b e e f} = \frac{U n i t s s a c r i f i c e d o f t u l i p}{U n i t s p r o d u c e d o f b e e f} O C_{b e e f} = \frac{650}{40} O C_{b e e f} = 16.25$

Opportunity cost (OC) of tulip for New Zealand: if New Zealand produces 750 boxes of tulip then it has to sacrifice the production of 75 tons of beef.

$O C_{t u l i p} = \frac{U n i t s s a c r i f i c e d o f b e e f}{U n i t s p r o d u c e d o f t u l i p} O C_{t u l i p} = \frac{75}{750} O C_{t u l i p} = 0.10$

Opportunity cost (OC) of tulip for Belgium: if Belgium produces 650 boxes of tulip then it has to sacrifice the production of 40 tons of beef.

$O C_{t u l i p} = \frac{U n i t s s a c r i f i c e d o f b e e f}{U n i t s p r o d u c e d o f t u l i p} O C_{t u l i p} = \frac{40}{650} O C_{t u l i p} = 0.06$

Since the opportunity cost of producing beef for New Zealand is lower (10<16.25) New Zealand has the comparative advantage in the production of beef.

Since the opportunity cost of producing tulips for Belgium is lower (0.06<0.10) Belgium has a comparative advantage in the production of tulips. Also, it does not have an absolute advantage in beef because it produces less beef than New Zealand.

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