Grp01 S01 - Comparative Advantage Qn02
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INTERNATIONAL TRADE THEORY – A.SMITH & D. RICARDO -
Presented by Joyz, Michelle & Sheena
Definitions
A country has an ABSOLUTE ADVANTAGE in the production of a product when it is more efficient than any other country at producing it.
The theory that countries should specialise in the production of goods and services they can produce most efficiently. A country is said to have a comparative advantage in the production of such goods and services.
Q2: Comparative Advantage
With respect to each part of the table below, indicate in each case the good in which each country has a comparative advantage or disadvantage.
Production Possibilities in the US & the UK
Wheat (bushels/ labour- hr) Cloth (yard/ labour-hr)
Case A US 4 1
Case A Case B Case B UK US UK
Case C US
1
4
1
4
Case C UK 1
2
3
2
2
2
Case A US
Case A UK
Wheat (bushels/ labour- hr)
4
1
Cloth (yard/ labour-hr)
1
2
CASE A
UK has a comparative advantage in producing cloth
US has a comparative advantage in producing wheat
In 1 labour hour, UK can produce 2 yards of cloth as compared to US who produce 1 yard of cloth.
In 1 labour hour, US can produce 4 bushels of wheat as compared to UK who produce 1 bushels of wheat.
US has comparative disadvantage in cloth UK has comparative disadvantage in wheat
Case B US
Case B UK
Wheat (bushels/ labour- hr)
4
1
Cloth (yard/ labour-hr)
3
2
CASE B
UK has absolute disadvantage in both goods as compared to US. US has absolute advantage in producing wheat. UK has comparative advantage in cloth as US has a comparative advantage in wheat. US has comparative disadvantage in cloth UK has comparative disadvantage in wheat
Case C US
Case C UK
Wheat (bushels/ labour- hr)
4
1
Cloth (yard/ labour-hr)
2
2
CASE C
US has absolute advantage in wheat. US has comparative advantage in wheat and UK shall produce cloth in order to trade. US has comparative disadvantage in cloth UK has comparative disadvantage in wheat
Presented by Joyz, Michelle & Sheena
Definitions
A country has an ABSOLUTE ADVANTAGE in the production of a product when it is more efficient than any other country at producing it.
The theory that countries should specialise in the production of goods and services they can produce most efficiently. A country is said to have a comparative advantage in the production of such goods and services.
Q2: Comparative Advantage
With respect to each part of the table below, indicate in each case the good in which each country has a comparative advantage or disadvantage.
Production Possibilities in the US & the UK
Wheat (bushels/ labour- hr) Cloth (yard/ labour-hr)
Case A US 4 1
Case A Case B Case B UK US UK
Case C US
1
4
1
4
Case C UK 1
2
3
2
2
2
Case A US
Case A UK
Wheat (bushels/ labour- hr)
4
1
Cloth (yard/ labour-hr)
1
2
CASE A
UK has a comparative advantage in producing cloth
US has a comparative advantage in producing wheat
In 1 labour hour, UK can produce 2 yards of cloth as compared to US who produce 1 yard of cloth.
In 1 labour hour, US can produce 4 bushels of wheat as compared to UK who produce 1 bushels of wheat.
US has comparative disadvantage in cloth UK has comparative disadvantage in wheat
Case B US
Case B UK
Wheat (bushels/ labour- hr)
4
1
Cloth (yard/ labour-hr)
3
2
CASE B
UK has absolute disadvantage in both goods as compared to US. US has absolute advantage in producing wheat. UK has comparative advantage in cloth as US has a comparative advantage in wheat. US has comparative disadvantage in cloth UK has comparative disadvantage in wheat
Case C US
Case C UK
Wheat (bushels/ labour- hr)
4
1
Cloth (yard/ labour-hr)
2
2
CASE C
US has absolute advantage in wheat. US has comparative advantage in wheat and UK shall produce cloth in order to trade. US has comparative disadvantage in cloth UK has comparative disadvantage in wheat
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