The table below summarizes the productivity of workers in bread and shirt production in two parts of a region. Output per Hour East West Bread 1 5 Shirts 1 10 What are the opportunity costs of producing bread and shirts in the East and the West. For which good does the East have a comparative advantage? What about the West ? Opportunity Cost of producing one unit of East West Bread Shirts The East has a comparative advantage in the production of ________. The West has a comparative advantage in the production of ________. Assume that transport costs are zero and that the exchange rate is five shirts for three loaves. If a western household switches one hour from bread production to shirt production and exchanges all the additional shirts for bread, will the household be better off? What are then any gains from trade (if any)? Suppose that the time required to execute the trade in (b) is twenty minutes hour. Is trade still beneficial? At what transaction cost (time per trade) would the net gain from trade be zero?
- The table below summarizes the productivity of workers in bread and shirt production in two parts of a region.
Output per Hour
East West
Bread 1 5
Shirts 1 10
- What are the
opportunity costs of producing bread and shirts in the East and the West. For which good does the East have acomparative advantage ? What about the West ?
Opportunity Cost of producing one unit of
East West
Bread
Shirts
The East has a comparative advantage in the production of ________.
The West has a comparative advantage in the production of ________.
- Assume that transport costs are zero and that the exchange rate is five shirts
for three loaves. If a western household switches one hour from bread production
to shirt production and exchanges all the additional shirts for bread, will the
household be better off? What are then any
- Suppose that the time required to execute the trade in (b) is twenty minutes hour. Is trade still beneficial?
- At what transaction cost (time per trade) would the net gain from trade be zero?
This table is actually showing the productivity of breads and shirts which is given here by using two different regions. Now we have to know some important words like opportunity cost or comparative advantage etc. Opportunity cost is actually indicating the forgone value of one good for choosing another goods. Comparative advantage is showing an advantage in which one country has lower opportunity cost for producing one good than other countries. If any one country has comparative advantage than other countries then this country will participate in trade with other countries because lower opportunity gives more benefit to those country who have comparative advantage on those product. But obviously it will always depend on the transaction cost or working hour of the producing country.
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