Suppose Anguilla and Barbuda intend to trade 250 bananas (B) for 300 cocoa beans (C). In Anguilla, there are 30000 workers and 1B requires 10 workers while 1C requires 15 workers. Barbuda, with a labour force of 45 000, each banana requires 45 workers while harvesting cocoa beans requires 15 workers. From the information provided, answer the following questions. If both countries refuse to trade and allocates half its resource to each good, calculate each country’s production. With the intention to trade, determine which country holds the absolute and comparative advantage in each good. Determine the production of each country undertakes with the intention to trade.
Suppose Anguilla and Barbuda intend to trade 250 bananas (B) for 300 cocoa beans (C). In Anguilla, there are 30000 workers and 1B requires 10 workers while 1C requires 15 workers. Barbuda, with a labour force of 45 000, each banana requires 45 workers while harvesting cocoa beans requires 15 workers. From the information provided, answer the following questions.
- If both countries refuse to trade and allocates half its resource to each good, calculate each country’s production.
- With the intention to trade, determine which country holds the absolute and
comparative advantage in each good. - Determine the production of each country undertakes with the intention to trade.
- Suppose the countries trade, calculate their consumption after trade.
- Determine the gains of trade. Is the trade mutually beneficial?
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A producer has absolute advantage if he is able to produce a competitive product using fewer resources. Producer with the lowest opportunity cost in producing a product has comparative advantage in production.
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