Question

In an eight-hour day Nicolas can catch 24 pounds of fish or he can repair 15 cars. In an eight-hour day Alejandro can catch 27 pounds of fish or he can repair 18 cars. If both men decide to follow their comparative advantage then Nicolas will gain from trade if he can sell 100 units of the good he is specializing in for at least ____ units of the other good. Enter a number rounded to 2 decimal places as necessary.

Answer 1

Answer:

Explanation:

Here Nicolas will gain comparative advantage only when he is selling the good he is specializing in and he would specialize in that good which would have lower opportunity cost for him. So the first step that we have to do here is to find out for which good Nicolas will have lower opportunity cost.

For Nicolas who in 8 hours can either catch 24 pound of fish or repair 15 cars,

the opportunity cost for catching 1 fish is = 15/24 = .625

the opportunity cost for repairing 1 car is = 24/15 = 1.6

So from the above observation we can say that for Nicolas catching fish has lower opportunity cost for him , so he should specialize in catching fish.

Therefore the term of trade for Nicolas would be

1 fish = .625 cars ,

if he can catch and sell 100 units worth of fish then he would have to give up 62.5 cars and then only he will gain from trade,

1 x 100 fish = .625 x 100

100 fish = 62.5 cars.

Answer 2

Answer: 63 units

Explanation:

Comparative advantage: A country has a comparative advantage in producing a commodity, if the opportunity cost of producing a commodity in terms of other commodity is lower in that country as compared to the other country.

Nicolas Comparative advantage:

(1) Opportunity cost of repairing 1 car = $\frac{24}{15}$

                                                              = 1.6

So, 1.6 pounds of fish have to be foregone for repairing 1 car.

(2) Opportunity cost of catching 1 pound of fish = $\frac{15}{24}$

                                                              = 0.625

So, 0.625 units of car repair have to be foregone for catching 1 pound of fish.

Alejandro Comparative advantage:

(1) Opportunity cost of repairing 1 car = $\frac{27}{18}$

                                                              = 1.5

So, 1.5 pounds of fish have to be foregone for repairing 1 car.

(2) Opportunity cost of catching 1 pound of fish = $\frac{18}{27}$

                                                              = 0.666

So, 0.666 units of car repair have to be foregone for catching 1 pound of fish.

Hence, above calculations shows that Nicolas has a comparative advantage in catching fish because Nicolas has a lower opportunity cost of catching 1 pound of fish than Alejandro.

Whereas, Alejandro has a comparative advantage in repairing cars because    Alejandro has a lower opportunity cost of repairing 1 car than Nicolas.

If Nicolas wants to catch 1 pound of fish so he have to foregone 0.625 cars repair.

so, if he can sell 100 pounds of fish as he is specialized in this good, then he have to foregone:

⇒100 × 0.625 = 63 cars repair