I need help with this homework question in microeconomics.I would appreciate any help?
Friday, February 27th, 2009 at
1:06 am
rainee asked:
England and Scotland both produce scones and sweaters. Suppose that an English worker can produce 50 scones per hour or 1 sweater per hour. suppose that a Scottish worker can produce 40 scones per hour or 2 sweaters per hour.
England and Scotland both produce scones and sweaters. Suppose that an English worker can produce 50 scones per hour or 1 sweater per hour. suppose that a Scottish worker can produce 40 scones per hour or 2 sweaters per hour.
- Which country has the absolute advantage in the production of each good? Which country has the comparative advantage?
- If England and Scotland decide to trade, which commodity will Scotland trade to England?
- If a Scottish worker could produce only 1 sweater per hour, would Scotland will gain from trade? Would England still gain from trade?
Tagged with: Commodity • Help Homework • Scones
Filed under: Commodity Trading
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- Which country has the absolute advantage in the production of each good?
ANS: England has an absolute advantage in producing scones because she can deploy one worker hour to produce 50 scones while Scotland can produce only 20 scones by using one worker hour. Scotland has an absolute advantage in producing sweaters because by spending one worker hour she can produce 2 sweaters against England’s ability to produce 1 sweater.
Which country has the comparative advantage?
ANS: England has a comparative advantage in producing scones because she has to give up production of only 1 sweater, while Scotland will have to give up 2.5 swetar output to get an output of 50 scones.
Scotland has a comparative advantage in producing sweaters because she has to give up production of only 20 scones, while England will have to give up 50 scones output to get an output of 1 sweater..
- If England and Scotland decide to trade, which commodity will Scotland trade to England?
Ans: Scotland will export to England the product she has comparative advantage, ie, sweaters to England and buy scones from England. This is because England will be willing to buy a sweater from Scotland at a price of anything less than 50 scones while Scotland will gain if it can buy more than 20 scones from England in exchange of 1 swetaer produced in Scotland.
Both will gain from tade. For example if the exchange ratioo is settled at 25 scones for 1 sweater, England gains by using one hour of worker for producing 50 scones and selling 25 of them to Scotland to buy 1 sweater. Had England produced sweaters itself, it could have got only 1 sweater by using one worker hour and no scones. Similarly, Scotland gains by producing 2 sweaters in 1 worker hour ans selling 1 sweater to England to get 25 scones, thus getting 20 scones and 1 sweater for her own consumption instead of getting 1 sweater and 20 scones by using one working hour equally divided to produce both the products.
- If a Scottish worker could produce only 1 sweater per hour, would Scotland will gain from trade? Would England still gain from trade?
Ans: IF Scotish worker were producing just 1 sweater per hour it would be still beneficial to trade. Scotland would produce 2 sweaters, sell one to England and get something less than 50 scones (say 45 scones) from England. England would also benefit because it would have given 45 scones to get one get one sweater and still consume 55 scones by using 2 worker hours. Here Scotland does not enjoy absolute advantage in any product, but enjoys comparative advantage in swetars because for producing 1 sweater Scotland would have to give up output of only 40 scones wheras England would have to give up producing 50 scones to produce 1 sweater.