Please help answer 4, 5 & 6 This is my answer to #3 Let us consider the followin
ID: 1132495 • Letter: P
Question
Please help answer 4, 5 & 6
This is my answer to #3
Let us consider the following scenario with 100 units of labor:
Country A can produce 20 Cars or 50 laptops.
Country B can produce 15 Cars or 30 laptops.
In above data, country A has absolute advantage in production of car or laptops due to superior productivity.
But,
Opportunity cost to produce car in country A = 50/20 = 2.5 laptop
Opportunity cost to produce laptop in country A = 20/50 = .4 car
Similarly
Opportunity cost to produce car in country B = 30/15 = 2 laptop
Opportunity cost to produce laptop in country B = 15/30 = .5 car
Now, country A has comparative advantage in producing laptop due to relatively lower opportunity cost of laptop, but country B has comparative advantage in producing cars due to relatively lower opportunity cost of car. Though, country A has absolute advantage in both the goods.
Explanation / Answer
4.Imagine a society where the farmer can produce wheat and meat faster than his neighbor the butcher. The farmer has the absolute advantage because he has the lower cost of producing both products. At this point the butcher wants wheat. If the farmer focuses on producing wheat and then trades some wheat to the butcher, the farmer can get more meat because the butcher can focus solely on making meat. Because the butcher makes this his specialization, he can now make meat at a lower opportunity cost than the farmer would focusing on both, thus the butcher has the comparative advantage.From the above example e can understand that Comparative advantage is more important for trade. Using specialization in a trade as a basis, if you take the amount of time and skill of a person specializing in a trade to lower their opportunity cost, it only makes sense to produce a specialized product at a better lower rate rather than produce everything yourself. Both the farmer and the butcher can consume more meat and wheat if they trade together.
5.If two parties trade based on comparative advantage and both gain the price must lie between the two traders opportunity costs.
6.Economist oppose policies that restrict trade among nations because these policies restrict the principle of comparative advantage that can put both countries ahead.Moreover trade allows all countries to achieve greater prosperity.