Homework SourseUnit labor requirements per one unit of good Calculate oppor
Solution
Country
Good X
Good Y
the difference between home and foreign in good X is 3
the difference between home and foreign in good Y is 9
The opportunity cost of 1for Good X is 12 good y
The opportunity cost of 3/1 good x is 12/3 good Y
The opportunity cost of 3 Good X is 4 Good Y
The opportunity cost of 3 good Y is 4 Good X
The opportunity cost of 1/3 good Y is 4/12 good X
The opportunity costs of 0.33 good Y is 0.33 good X
The Home country’s opportunity cost of Good X is 3/1 or 3 units of Good Y; the Foreign country’s opportunity cost of good X is 12/3 or 4 units of good Y.
The Home country’s opportunity cost of Good Y is 1/3 or 0.33 units of Good X, the Foreign country’s opportunity cost of good Y is 4/12 or 0.33 units of good X.
Comparative advantage: is an economic law that demonstrates the ways in which protectionism (mercantilism, at the time it was written) is unnecessary in free trade. Popularized by David Ricardo, comparative advantage argues that free trade works even if one partner in a deal holds absolute advantage in all areas of production - that is, one partner makes products cheaper, better and faster than its trading partner.
The primary fear for nations entering free trade is that they will be out-produced by a country with an absolute advantage in several areas, which would lead to imports, but no exports. Comparative advantage stipulates that countries should specialize in a certain class of products for export, but import the rest - even if the country holds an absolute advantage in all products.
Which country has comparative advantage in producing Good X ?
Answer: Home
Because home country has required less labor making good X less opportunity cost
Which country has comparative advantage in producing Good X?
Answer: Home and foreign country
Because both are same
| Country | Good X | Good Y |
