Question

Scenario 10 Suppose that in Country A, one worker per day can produce either 120 units of food or 50 units of capital goods; while in in Country B, one worker per day can produce either 90 units of food or 30 units of capital goods. Refer to Scenario 10: (1) Which country has the comparative advantage in the production of capital goods? Explain. (2) Refer to scenario 10. Identify a specific number of units of food that could be traded for 10 units of capital goods and be mutually beneficial. Explain

Answer 1

Answer:

1) country A has a comparative advantage in production of capital goods.

2) for country A 24 units of food can be traded for 10 units of capital goods,

for country B 30 units of food can be traded for 10 units of capital goods.

Explanation:

country A has a comparative advantage in production of capital goods because they have been able to produce more capital goods with the same amount of input (worker) than country B.

For country A, 120 units of food = 50 units of capital goods, therefore

10 units of capital good will be traded for (120 x 10)/50 = 24 units of food.

for country B 90 units of food is equivalent to 30 units of capital goods, therefore,

(90 x 10)/30 = 30 units of food