Suppose there is trade between Spain and France Suppose that each produce only two goods, and that they each have $140,000 of resources to spend on the production of these goods. France • France produces one unit of oil at a cost of $5 per unit. • France can produce one unit of beef at a cost of $17 per unit. Spain • Spain produces one unit of oil at a cost of $11 per unit. • Spain produces one unit of beef at a cost of $21 per unit. a)Which country has the comparative advantage in producing oil? Which has the comparative advantage in producing beef? b)Draw the Production Possibilities Frontier (PPF) for Spain under autarky. Draw this PPF with oil on the x-axis and beef on the y-axis. Label both the x-intercept and y-intercept Suppose now that Spain and France start trading with each other at a rate of 3 units of oil for 1 unit of beef. C) Draw the Production Possibilities Frontier (PPF) for Spain under this trade agreement.
Suppose there is trade between Spain and France Suppose that each
produce only two goods, and that they each have $140,000 of resources to spend on the
production of these goods.
France
• France produces one unit of oil at a cost of $5 per unit.
• France can produce one unit of beef at a cost of $17 per unit.
Spain
• Spain produces one unit of oil at a cost of $11 per unit.
• Spain produces one unit of beef at a cost of $21 per unit.
a)Which country has the
advantage in producing beef?
b)Draw the Production Possibilities Frontier (
oil on the x-axis and beef on the y-axis. Label both the x-intercept and y-intercept
Suppose now that Spain and France start trading with each other at a rate of 3 units of oil for 1
unit of beef.
C) Draw the Production Possibilities Frontier (PPF) for Spain under this trade agreement.
D) Draw this PPF with oil on the x-axis and beef on the y-axis. Label both the x-intercept and y-
intercept.
Given
France produces one unit of oil at a cost of $5 per unit and one unit of beef at a cost of $17 per unit.
Spain produces one unit of oil at a cost of $11 per unit and one unit of beef at a cost of $21 per unit.
Each nation has $140,000 of resources to spend on the production of beef and oil.
A nation has a comparative advantage in the production of good beef if it is more efficient in the production of beef as compared to another nation. More efficiency means it uses less input or resources to produce beef. In other words, the nation which has less opportunity cost of beef has a comparative advantage in the production of beef.
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