Question

Malawi and Zambia each produce both tobacco and maize in thousands of tons, as shown below:

	Tobacco	Maize
Malawi	20	200
Zambia	10	150

Malawi appears to have an absolute advantage in the production of both commodities. Would you advice that trade should still take place between the two countries? Justify your answer.

Answer 1

In this case Malawi appears to have an absolute advantage in the production of both commodity but according to Ricardo's compartive advantage both countries can gain by trade. If Malawi specialize in production of tabacco because Malawi has compartive advanttage in production of tabacco and Zambia specialize in production of maize becuase Zambia has compartive advantage in production of maize. In this way both countries can end up with gain after trade. For example if Malawi produce only tabacco then it produce 40 thousands of tabacco and it can import 200 thousand of maize from Zambia at cost less than 20 thousand of tonnes tabacco so Malawi is gaining similarily Zambia also gain from trade.