Please fill in numbers for the blank as wellSolution1 Absolu

Please fill in numbers for the blank as well!

Solution

1) Absolute Advantage:

Absolute advantage is the ability of a country to produce a good or service at a lower per unit cost as compared to any other country that produces same good or service.

Euphoria has an absolute advantage in the production of wheat and jeans both because it requires less number of labor hours to produce both goods as compared to Bellissima.

2) Bellissima:

675 bushels of wheat = 1125 pairs of jeans

1 bushel of wheat = 1125/675 = 1.67 pair of jeans

Opportunity cost of 11 bushel of wheat = 1.67 pair of jeans

Euphoria;

750 bushels of wheat = 4500 pairs of jeans

1 bushel of wheat = 4500/750 = 6 pair of jeans

Opportunity cost of 1 bushel of wheat = 6 pair of jeans

Comparative Advantage

A country has a comparative advantage in producing that good if the opportunity cost of producing that good is lower in that country as compared to another country.

Bellissima has comparative advantage in the production of wheat.

Euphoria has comparative advantage in the production of jeans.

Bellissima will produce only wheat.

Euphoria: Wheat = 54000/24 = 2250 bushels

Jeans = 18000/12 = 1600 pairs

Bellissima will export wheat and import jeans. Euphoria will export jeans and import wheat.

Total production of wheat = 675 bushels by Bellissima + 750 bushels by Euphoria = 1425 bushels

Total production of jeans = 1125 pairs by Bellissima + 4500 pairs by Euphoria = 4625 pairs

When Bellissima specializes and Euphoria still produces both:

Total production of wheat = 900 by Bellissima + 2250 bushels by Euphoria = 3150 bushels

Total production of jeans = 1600 pairs