Financial Calculation
US UK US UK US UK US UK  Wheat (bushels/manhour) 4 1 4 1 4 1 4 2  Cloth (yards/manhour 1 2 3 2 2 2 2 1   1. For each of the above, indicate which country has comparative advantage, if any, in which commodity, and indicate if trade is possible or beneficial. Case A: US has absolute and comparative advantage in wheat, UK in cloth. Opportunity cost of wheat in US is 1/4=0.25 cloth, in UK is 2/1=2 cloth. Similarly opportunity cost of cloth in US is 4/1=4 wheat, in UK is ½=0.5 cloth. Yes trade is beneficial. Case B: US has comparative advantage in …show more content…
1. Opportunity costs are 2 (uppers) and 0.5 (soles) in Korea, and 1 for both uppers and soles in Thailand. Therefore O.C. of uppers is lower in Thailand and O.C. for soles is lower in Korea.
2. Option B will provide the maximum output since Korea enjoys a comparative advantage is in soles, while Thailand in uppers.
Option A will result in a world output of 55,000 pairs of shoes, computed as follows:
• In Korea, 100 workers produce (400*100)=40,000 soles, matched by 200 workers produce (200*200) = 40,000

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