(c) Which country has the comparative advantage in corn production and which cou
ID: 1143905 • Letter: #
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(c) Which country has the comparative advantage in corn production and which country has the comparative advantage in tobacco production? (d) If each nation specializes in the product where it has a comparative advantage and trades with the other, what will be the limits to the terms of trade for each tobacco unit? (e) If the nations do not specialize and trade but remain at alternative C in East and D in West, the combined production of East and West Wakovia will be how much tobacco and how much corn?(0) However, if the two nations specialize, the combined production of East and West Wakovia will be how much tobacco and how much corn? What will be the total gain of tobacco and corn if the countries specialize and trade? (g) 12. Answer the next three questions on the basis of the following production possibilities data for Narnia and Somosa. All data are in NARNIA PRODUCTION POSSIBILITIES: 1000s A B C DE Computer 80 60 40 20 0 chip Fuel injectors 0 20 40 60 80 SOMOSA PRODUCTION POSSIBILITIES: A B C D E Computer 40 30 20 10 0 chip Fuel injectors 0 20 40 60 80 (a)lf trade occurs between Narnia and Somosa, which nation should export what product? Why? (b)What are the limits of the terms of trade between Narnia and Somosa? (c) Assume that prior to specialization and trade, Namia and Somosa chose production possibility "C." Now each specializes according to comparative advantage. What will be the resulting gains from trade? Explain your answerExplanation / Answer
(a) Narnia should export computer chips and Somosa should export fuel injectors. Narnia is the low-cost producer of computer chips. The opportunity cost of 1 unit of computer chips is 1 unit of fuel injectors. For Somosa the opportunity cost of 1 unit of computer chips is 2 units of fuel injectors.
Somosa is the low-cost producer of fuel injectors. The opportunity cost for Somosa to produce fuel injectors is 1/2 unit of computer chips. The opportunity cost of fuel injectors for Narnia is 1 unit of fuel injectors for 1 unit of computer chips.
(b) From 1 unit of computer chips for 1 unit of fuel injectors up to 1 unit of computer chips for 2 units of fuel injectors.
(c) Before specialization, Narnia produced 40 units of computer chips and Somosa 20 units for a total of 60 units. After specialization and trade, 80 units of computer chips are produced by Narnia for a gain of 20 units of output.
Before specialization, Narnia produced 40 units of fuel injectors and Somosa 40. After specialization and trade, Somosa will produce 80 units. Output did not change with this product.
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