Two countries, A and B, produce cotton and wine. The table below describes theirmaximum daily production of each good in kilograms for cotton and liters for wine.Maximum daily production Country A Country BCotton4040Wine5040Which country has the comparative advantage in the production ofa.wine? Why?b.Why?If these two countries trade, which good will each of them export?C.When trade between the two countries is not allowed, country Aproduces 16 kg. of cotton and 30 liters of wine and country B produces 22 kg. ofcotton and 18 liters of wine. Would they agree to trade if the agreement included thefollowing two conditions:Each produces only the good for which they have the comparative advantageThey trade 17 kg of cotton for 19 liters of wine

Name: Two countries, A and B, produce cotton and wine. The table below desc
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Description: Two countries, A and B, produce cotton and wine. The table below describes theirmaximum daily production of each good in kilograms for cotton and liters for wine.Maximum daily production Country A Country BCotton4040Wine5040Which country has the com

Answer: Given, Maximum Daily production Country A Country B Cotton 40 40 Wine 50 40 (a).…

Answered: Two countries, A and B, produce cotton…

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter33: International Trade

Section: Chapter Questions

Problem 2SCQ: Brazil can produce 100 pounds of beef or 10 autos. In contrast the United States can produce 40...

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Two countries, A and B, produce cotton and wine. The table below describes their
maximum daily production of each good in kilograms for cotton and liters for wine.
Maximum daily production Country A Country B
Cotton
40
40
Wine
50
40
Which country has the comparative advantage in the production of
a.
wine? Why?
b.
Why?
If these two countries trade, which good will each of them export?
C.
When trade between the two countries is not allowed, country A
produces 16 kg. of cotton and 30 liters of wine and country B produces 22 kg. of
cotton and 18 liters of wine. Would they agree to trade if the agreement included the
following two conditions:
Each produces only the good for which they have the comparative advantage
They trade 17 kg of cotton for 19 liters of wine

Expert Solution

Step 1

Answer:

Given,

Maximum Daily production	Country A	Country B
Cotton	40	40
Wine	50	40

(a). Let us first find the opportunity cost of both goods for both countries to find the comparative advantage:

The opportunity cost of cotton for country A: if country A produces 40 units of cotton it has to sacrifice the production of 50 units of wine.

$O C_{c o t t o n} = \frac{U n i t s s a c r i f i c e d o f w i n e}{U n i t s p r o d u c e d o f c o t t o n} O C_{c o t t o n} = \frac{50}{40} O C_{c o t t o n} = 1.25$

The opportunity cost of wine for country A; if country A produces 50 units of wine then it has to sacrifice the production of 40 units of cotton.

$O C_{w i n e} = \frac{U n i t s s a c r i f i c e d o f c o t t o n}{U n i t s p r o d u c e d o f w i n e} O C_{w i n e} = \frac{40}{50} O C_{w i n e} = 0.8$

The opportunity cost of cotton for country B: if country B produces 40 units of cotton it has to sacrifice the production of 40 units of wine.

$O C_{c o t t o n} = \frac{U n i t s s a c r i f i c e d o f w i n e}{U n i t s p r o d u c e d o f c o t t o n} O C_{c o t t o n} = \frac{40}{40} O C_{c o t t o n} = 1$

The opportunity cost of wine for country B; if country B produces 40 units of wine then it has to sacrifice the production of 40 units of cotton.

$O C_{w i n e} = \frac{U n i t s s a c r i f i c e d o f c o t t o n}{U n i t s p r o d u c e d o f w i n e} O C_{w i n e} = \frac{40}{40} O C_{w i n e} = 1$

Since the opportunity cost of producing cotton for country B is less, country B has a comparative advantage in the production of cotton.

Since the opportunity cost of producing wine for country A is less, country A has a comparative advantage in the production of wine.

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