1. Consider the following information: Marginal Product of Labor Maple Syrup Avo

Question

1. Consider the following information:

Marginal Product of Labor

Maple Syrup

Avocados

Canada

12 oz

4 pc

Mexico

10 oz

5 pc

Which country has absolute advantage in which good?

2. Complete the following table:

Opportunity Cost

Maple Syrup

Avocados

Canada

Mexico

Which country has comparative advantage in which good?

3. Find the autarky relative price of Avocados in both countries under perfect competition.

4. What can you infer about the real wages in both countries under perfect competition?

Marginal Product of Labor

Maple Syrup

Avocados

Canada

12 oz

4 pc

Mexico

10 oz

5 pc

Explanation / Answer

1. Absolute advantage basically means with the same given input one country is more productive in producing one particular good than the other country. So in the above example, it can be seen that with an additional unit of labor Canada can produce 12oz of Maple Syrup whereas Mexico can produce only 10 oz. Thus Canada has an absolute advantage in Maple syrup. Similarly, with an additional labor Mexico can produce 5 pc of Avocado whereas Canada Can produce only 4pcs. Thus Mexico has an absolute advantage in Avocados

2. Opportunity cost is the sacrifice of a product that has to be made to produce one extra unit of the other product.

So to produce 12oz maple syrup Canada has to sacrifice 4 pc of Avocado

for 1oz maple syrup 4/12 = 1/3 pc of Avocado

To produce 10oz maple syrup Mexico has to sacrifice 5 pc of Avocado

for 1oz maple syrup 5/10 = 1/2 pc of Avocado

To produce 4 pc of Avocado Canada has to sacrifice 12 oz of maple syrup

for 1 pc of Avocado 12/4 = 3 oz of Maple syrup

To produce 5 pc of Avocado Mexico has to sacrifice 10 oz of maple syrup

for 1 pc of Avocado 10/5 = 2 oz of Maple syrup

Opportunity Cost

So Canada has a comparative advantage in producing maple syrup as it has to sacrifice 1/3 pc of Avocado compared to Mexico that has to sacrifice 1/2.

Mexico has a lower opportunity cost for producing Avocados as it has to sacrifice 2oz of Maple syrup where has Canada has to sacrifice 3 oz of Maple syrup. Thus Mexico has a comparative advantage in Avocados.

3. Autarky ( closed economy) relative price of Avocadoes in Canada under perfect competition price of 3oz of Maple syrup and Mexico is the price of 2oz of Maple Syrup.

4. Under perfect competition, the real wage should be equal to its marginal productivity because if one sector gives more wage than the other then high chanced that the labor will move to the higher wage sector, considering both sector needes equal skill set so it can nither be more or less.

MapleSyrup Avocados Canada 1/3 Pc of Avocado 3 oz of Maple syrup Mexico 1/2 Pc of Avacado 2 oz of Maple syrup

Related Questions

Navigate

• Browse (All)
• Browse 1
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.