IV Short Answer Questions: 1. Assume that there are totally s00 units of resourc
ID: 1143520 • Letter: I
Question
IV Short Answer Questions: 1. Assume that there are totally s00 units of resources in both Italy and Portugal. The resources required to produce tomatoes and grapes in Portugal and Italy, as well as production and consumption without trade, are shown as below. Required to Produce 1 Ton of Tomatoes and Grapes 1 ton of grapes Table 1 Resources 1 ton of tomatoes 25 40 20 Italy80 Grapes Portugal Table 2 Production and Consum ption without Trade (unit: tons) Tomatocs 30 Portugal Italy 10 (a) (b) (c) Which country has absolute advantage in the production of tomato? Which country has comparative advantage in the production of grape? What should Portugal and Italy specialize in the production of? Please calculate the production with specialization and show your results in the table below. Table 3 Production with Specialization Tomatoes Grapes Portugal Italy 10 tons of tomatoes from Italy and 10 tons of grapes from Portugal are available for trade. In Table 4 below, please show the consumptions after trade. (a) Table 4 Consumption after trade Grapes Tomatoes Italy (e) What are the gains of Portugal and Italy from this specialization and trade?Explanation / Answer
Answer : 1) a ) In case of tomato production 1 ton tomatoes produces by 25 units of resources in Portugal. Total production and consumption of tomatoes in Portugal is 8 tons. Therefore, total resources to 8 tons production is (8 × 25) = 200 units of resources.
Where Italy produces 1 ton tomatoes by 40 units of resources. Therefore, to produce 10 tons tomatoes Italy needs
(40 × 10) = 400 units of resources.
Therefore, Portugal has absolute advantage in the production of tomato.
b) In case of grapes, Portugal produces 1 ton grapes by 20 units of resources. To produce 30 tons grapes Portugal needs ( 20 × 30 ) = 600 units of resources.
While Italy produces 1 ton grapes by 80 units of resources. To produce 5 tons grapes Italy needs
(80 × 5) = 400 units of resources.
Therefore, Italy has comparative advantage in the production of grape.
c) Portugal is specialized in the production of tomato and Italy is specialized in the production of grape.
As production and consumption levels are given in the question by table 2 , therefore production with specialization remains same as table 2 .
d) Now according to question 10 tons of tomatoes from Italy and 10 tons of grapes from Portugal are available for trade. Therefore, consumption becomes
Grapes Tomatoes
Portugal : 20 18
Italy : 15 0
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