Problem 6 (16 points) The table below shows shows the tons of steel and concrete
ID: 1142533 • Letter: P
Question
Problem 6 (16 points) The table below shows shows the tons of steel and concrete that can be produced by the United States and France in an hour. US's production in 1 hour France's production in 1 hour Steel 100 Steel 25 Concrete 200 Concrete 250 a. (2 points) Which country has the comparative advantage in steel? Briefly explain your derivation. b. (2 points) Which country has the comparative advantage in concrete? Briefly explain your derivation. c. (2 points) Determine which country has the absolute advantage in steel. Briefly explain your derivation. d. (2 points) Determine which country has the absolute advantage in concrete. Briefly explain your derivation e. (2 points) Suppose US spends 30 minutes of each hour producing steel and 30 minutes producing concrete. How much steel and concrete can US produce in an hour. f. (2 points) Suppose France spends 30 minutes of each hour producing steel and 30 minutes producing concrete How much steel and concrete can France produce in an hour. Ec101J Applied Microeconomics Fall 2018 g (2 points) According to the principle of comparative advantage, determine the activity in which each country (US and France) should specialize in order to gain from trade. h. (2 points) When US and France specialize and trade, what are the total gains from trade?Explanation / Answer
U.S opportunity cost for the production of steel = 200/100 = 2.
U.S opportunity cost for the production of concrete= 100/200= 0.5.
France opportunity cost for the production of steel = 250/25= 10
France opportunity cost for the production of concrete = 25/250= 0.1.
1. U.S has a comparative advantage in the production in steel. Because it has a lower opportunity cost in the production of steel.
2. France has a comparative advantage in the production of concrete because it has a lower opportunity cost in the production of concrete.
3. U.S has a absolute advantage in the production of steel because it can produce more steel with given resources .
4. France has an absolute advantage in the production of concrete because it can produce more concrete with given resources.