given the following prices, would Narnia and Shire gain from trade with each oth

Question

given the following prices, would Narnia and Shire gain from trade with each other? If so explain. If not state who would be worse off from trading and explain why? (Other questions in the picture) For each labor hour, Narnia and Shire can produce either rings or wardrobes as follows: Rings Wardrobes Narnia 20 Shire 15 12 10 the following prices, would Narnia and Shire gain from trade with each other? If so explain. If not, state who would be worse off from trading and explain why (a) 12 rings for 19 wardrobes Given the following prices, (b) 9 rings for 5.5 wardrobes (c) 6 rings for 10.5 wardrobes

Explanation / Answer

Narnia produces one ring in 60 / 20 = 3 minutes

Shire produces one ring in 60 / 15 = 4 minutes

Narnia produces one wardrobe in 60 / 12 = 5 minutes

Shire produces one wardrobe in 60 / 10 = 6 minutes

Narnia has an absolute advantage in producing both rings and wardrobes.

Labour time used to produce rings for the first trade

Narnia = 12 x 3 = 36 minutes

Shire = 12 x 4 = 48 minutes

Labour time used to produce wardrobes for the first trade

Narnia = 19 x 5 = 95 minutes

Shire = 19 x 6 = 114 minutes

Neither Narnia nor Shire will gain from the first trade as the time taken for producing wardrobes is greater than time taken for producing rings. Shire will be worst off as it would waste more time.

Labour time used to produce rings for the second trade

Narnia = 9 x 3 = 27 minutes

Shire = 9 x 4 = 36 minutes

Labour time used to produce wardrobes for the second trade

Narnia = 5.5 x 5 = 27.5 minutes

Shire = 5.5 x 6 = 33 minutes

The beneficial trade would be that Narnia produces 9 rings and trades with Shire for 5.5 wardrobes. In this trade Narnia will save 0.5 minutes and Shire will save 3 minutes.

Labour time used to produce rings for the third trade

Narnia = 6 x 3 = 18 minutes

Shire = 6 x 4 = 24 minutes

Labour time used to produce wardrobes for the third trade

Narnia =10.5 x 5 = 52.5 minutes

Shire = 10.5 x 6 = 63 minutes

Neither Narnia nor Shire will gain from the first trade as the time taken for producing wardrobes is greater than time taken for producing rings. Shire will be worst off as it would waste more time.

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