1. Workers in the country of Andalia can produce either 10 tons of cheese or 20
ID: 1200496 • Letter: 1
Question
1. Workers in the country of Andalia can produce either 10 tons of cheese or 20 tons of yogurt using a certain quantity of resources. With this same quantity of resources, workers in the country of Barragon can produce either 6 tons of cheese or 18 tons of yogurt.
A. Which country has an absolute advantage in the production of these goods? Explain. (3 points)
B. Which country has a comparative advantage in the production of yogurt? Explain. (3 points)
C. Who benefits most from trade between these countries? Explain. (3 points)
D. What policy would benefit yogurt producers in Andalia? Explain. (3 points)
Explanation / Answer
A. workers of Andalia ad higher productivity in producing both the products. Andalia produces both the product at lower cost as compared to the Barragon.
10 tones > 6 tones of cheese and 20 tones > 18 tones of yogurt
B.Barragon will have comparative advantage in production of yogurt
as with the same resouces barter rate of Andalia to produce yogurt is 20/10 = 2
and barter rate of barragon to produce yogurt is 18/6 = 3
hence Barragon had greater advantage of producing yogurt then Andalia.
C. Andalia possesses absolute advantage over Barragon in both cheese and yogurt, but Andalia has comparative advantage in cheese than in yogurt.
10/20 > 6/18
D. Policy of Absolute advantage will benefit yogurt production in Andalia because Andalia can produce 20 tones of yogurt with the given resources and Barragon can produce only 18 tones of yogurt with the same resources.
But if we comparatively analyse we will see that Barragon will have comparative advantage of production of yogurt.
production of cheese and yogurt country cheese (in tones) yogurt (in tones) Domestic Barter rate Andalia 10 20 1cheese=2yogurt Barragon 6 18 1cheese=3yogurtRelated Questions
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