1) only two commodities are produced; 2) there are constant ratios of input to o
ID: 1132666 • Letter: 1
Question
1) only two commodities are produced; 2) there are constant ratios of input to output whatever the level of output of wine and cheese; and 3) competition prevails in all markets. Labor hours per keg of Labor hours per kilogram of wine cheese Vintland 15 10 4 Republic A. Which nation has an absolute advantage in wine production? B. which nation has an absolute advantage in cheese production? C. Vintianda opportunity cost to produce an additional keg of wine is D. Vintland's opportunity cost to produce an additional kilo of cheese is E. Meonited's opportunity cost to produce an additional keg of wine is F. Moonited's opportunity cost to produce an additional kilo of cheese is G. Which nation has a comparative advantage in wine production? H. Which nation has a comparative advantage is cheese production? I. Describe the adjustment process in the Mognited Republic as international trade begins: kilos of cheese. kegs of wine. kilos of cheese Skegs of wine i. What happens to the domestic price of wine? ii. What happens to the quantity of wine purchased? ii. What happens to the quantity of wine produced? iv. Does the Moonited Republic export or import wine? v. What happens to the domestic price of cheese? vi. What happens to the quantity of cheese purchased? vii. What happens to the quantity of cheese produced? vi. Does the Mood Republic export or import cheese? ix. What group in the Moonited Republic gains from trade? x. What group in Moonited Republic loses from trade? xi. Does the Mognited Republic as a whole gain from international trade? Explain.Explanation / Answer
A) 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.
Moonited Republic has an absolute advantage in the production of wine because it requires less labor hours to produce wine. It means Moonited Republic is able to produce more wine as compared to its competitor.
B) Moonited Republic has an absolute advantage in the production of cheese because it requires less labor hours to produce it. It means Moonited Republic is able to produce more cheese as compared to its competitor if both have same labor hours.
C) Vintland:
15 labor hours for 1 keg of wine = 10 labor hours for 1 kg of cheese
1 keg of wine = 10/15 = 2/3 = 0.67 kilos of cheese
D) 10 labor hours for 1 kg of cheese = 15 labor hours for 1 keg of wine
1 kg of cheese = 15/10 = 1.5 keg of wine
E) Moonited:
10 labor hours for 1 keg of wine = 4 labor hours for 1 kg of cheese
1 keg of wine = 4/10 = 0.4 kg of cheese
F) 4 labor hours for 1 kg of cheese = 10 labor hours for 1 keg of wine
1 kg of cheese = 10/4 = 2.5 keg of wine
G) 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.
Opportunity cost of producing wine is lower when it is produced by Moonited. So, Moonited has comparative advantage in the production of wine.
H) Opportunity cost of producing cheese is lower when it is produced by Vintland. So, Vintland has comparative advantage in the production of cheese.
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