The following information shows labor productivity (output per day) in the count
ID: 1237656 • Letter: T
Question
The following information shows labor productivity (output per day) in the countries of Alpha and Beta:Alpha... 3 computers... 15 shirts
Beta.... 2 computers... 6 shirts
Answer these questions:
(a) Which country has a comparative advantage in the production of computers? Explain carefully and give specific numbers as part of your explanation.
(b) If these two countries trade with each other, what should each country produce? Why?
(c) If the terms of trade are 1 computer = 4 shirts, will both countries gain from trade (compared to not trading at all)? Explain.
(d) Suppose that the countries use the same currency, and that the wage for shirt-makers is $150 per day in Alpha, versus only $80 in Beta. If the countries have free trade, will all of Alpha
Explanation / Answer
a).beta has a comparative advantage in producing computers.Even though alpha is better at making computers and shirts than beta,It has more advantage in producing shirts b. if the two countries trade with each other Alpha should produce shirts and beta should produce computers. Becuase c. Both countries will benefit from the trade. D. NO they don't move. They can earn more income by staying in alpha
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