uestion 1: (Total Points: 10 Refer to the following table in answering the quest

Question

uestion 1: (Total Points: 10 Refer to the following table in answering the questions that follow. Assume each country has 100 laborers Australia United States 35 Absolute Advantage Pounds of Chicken 17 roduced per hour Bushels of Wheat 51 105 roduced per hour Comparative Advantage (a) Which country has an absolute advantage in the production of wheat and beef? Show using numbers. (Points: 3) (b) Using the Ricardian model, would trade between Australia and the United States be mutually beneficial? Briefly explain why or why not using the data provided above. (Points (c) Would your answers to above problems be different if a worker in the United States became more productive and could produce 70 pounds of chicken or 140 bushels of wheat per hour? Briefly explain your answer using numbers. (Points 1 + 3)

Explanation / Answer

a) absolute advantage is shown in the table above. USA has absolute advantage in both - Chicken and Wheat

b) No country has comparative advantage as opportunity costs(OC) are the same for both the countries hence will not gain from trade with each other.

Australia: OC Chicken : 3 and OC For wheat = 1/3

USA : OC Chicken : 3 and OC For wheat = 1/3

c) Yes, trade is possible in this case as USA has comparative advantage in production of Wheat as opportunity cost has gone up from from 1/3 to 1/2, and hence, USA should focus on Chicken and Australia should focus more on Wheat.

Australia USA Absolute advantage Pounds of chicken per hour 17 35 USA (Since more production of Chicken per hour) Bushels of wheat hour 51 105 USA (Since more production of Wheat per hour) Comparative advantage nil nil

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