Answer the above questions. 3 The table shows the output that can be produced by
ID: 1120149 • Letter: A
Question
Answer the above questions. 3 The table shows the output that can be produced by two countries. Country Rice (Tonne) 600 2,000 Car (Unit) 1,500 650 Malaysia Thailand Assuming the resources are divided equally between the production of rice and car (a) Define absolute advantage. State the country that has the absolute advantage in the production of Rice: Cars: (b) Calculate the opportunity cost of each country for producing one tonne of rice (c) (d) and one unit of car Which country has the comparative advantage of producing rice and cars? Construct a new table to show the amount of output produced after specialization.Explanation / Answer
a) Absolute advantage is the advantage a country must produce goods and services at the low cost of production. It is called absolute because many other countries won’t be able to produce the same good or service at the given cost. This give the country an absolute edge on others.
If we assume the resource to be equally divided the Malaysia will have absolute advantage in producing Cars whereas for Thailand it will be Rice.
b) Ooportunity cost is the loss incurred by not producing the next best atlernative.
so for malaysia-
Opportunit cost of producing rice- 1500/600 =2.5
opportunity cost of producing car- 600/1500 =0.4
For Thailand-
Opportunit cost of producing rice- 650/2000 =0.325
opportunity cost of producing car- 2000/650= 3.07
c) Comparative ADvantage of producing Rice-
Malaysia opportunity cost in making Rice = 1500/600 =2.5
Thailand Opportunity cost in making Rice= 650/2000= 0.325
From the above we understand that Thailand has comparative advantage in producing Rice.
Comparative ADvantage of producing Car-
Malaysia opportunity cost in making Car=600/1500 =0.4
Thailand Opportunity cost in making Car=2000/650= 3.07
From above we can see that Malyasia has comparitive advantage in producing car.
d)
Rice
Car
Malaysia
0
2100 (All the resource is used in making car so production will increase 1500+600)
Thailand
2650 (All the resource is used in making Rice so production will increase 2000+650)
0
Rice
Car
Malaysia
0
2100 (All the resource is used in making car so production will increase 1500+600)
Thailand
2650 (All the resource is used in making Rice so production will increase 2000+650)
0