Chapter 15, Problem 1SPA

(a)

To determine

Identify the price and quantity of a container of roses without international trade.

Explanation of Solution

Table-1 shows the data of quantity demanded and quantity supplied as follows:

According to the equilibrium condition, the number of the container of roses is produced where the quantity demanded is equal to the quantity supplied and the price is charged at the corresponding equilibrium quantity level. Since the quantity demanded is equal to the quantity supplied, Country U produces 6 million containers per year. In this equilibrium, the price level is $175 per container. Therefore, without international trade, Country U will charge the price of a container of roses as $175 and in a year, the quantity sold and bought is 6 million containers.

(b)

To determine

Identify the comparative advantage in producing roses.

Explanation of Solution

According to Table-1, the price charged by Country U is $175 per container. The wholesalers brought roses at auction from Countries A and H for $125 per container. The cost of production of roses in Country U is higher than that of Countries A and H. Therefore, the rest of the world has a comparative advantage in producing roses than Country U.

Economics Concept Introduction

Comparative advantage: Comparative advantage is a term in economics that explains the ability of a country to produce an output or production of goods and services in an economy at a minimum opportunity cost when compared to the business partners, and it realizes better profits or sales margins.