Question

Suppose there are two countries producing just two goods, soybeans and potash fertilizer. Each country has...

Suppose there are two countries producing just two goods, soybeans and potash fertilizer. Each country has the same amount of inputs (factor resources and technology). An analysis of the level of output for each product if each country was to fully specialize in producing only one good is shown below. (the data shows how much output could be produced through specialization by each country: example: for soybeans country A can produce 40 units soybeans specializing and zero potash and B could produce 60 units soybeans and zero potash if it specialized in only producing soybeans) Specialization output outcomes=

                 Country    A                                              Country B

Soybeans                           0              40                                          0                         60

Potash fertilizer               80               0                                        240                          0

B1. Which country has an absolute advantage in Soybeans production? _________ans.

B2. Which country has an absolute advantage in Potash production? _________ans

B3. Which country has a comparative advantage in Soybeans production? And why? (one sentence) __________ans.

B3 b.why----

B4. Which country has a comparative advantage in Potash production? __________ans.

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Answer #1

a) Country B has an absolute advantage in the Soybean production as they are numerically superior in the Soybean production.

b) Country B has an absolute advantage in the potash production again because they have superior numbers.

c)The opportunity cost for soybean production in Country A = 80/40 = 2 potash and in country 2 it is 240/60 = 4 potash, As country A can produce soybean at a lower price it has a comparative advantage in the market is soybean.

d) Country B has a comparative advantage in the production of Potash.

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