Table 1 shows tonnes of sugar and tonnes of rice that Barbados (BB) and Belize (BZ) can
Question:
Table 1 shows tonnes of sugar and tonnes of rice that Barbados (BB) and Belize (BZ) can produce with one hour of labour time under four different hypothetical situations. In each case, identify the commodity in which Barbados and Belize have:
(a) an absolute advantage or disadvantage.
(b) comparative advantage or disadvantage.
Table 1
Case A | Case B | Case C | Case D | |||||
BB | BZ | BB | BZ | BB | BZ | BB | BZ | |
Sugar (tonnes/hour) | 4 | 1 | 4 | 1 | 4 | 1 | 4 | 2 |
Rice (tonnes/hour) | 1 | 2 | 3 | 2 | 2 | 2 | 2 | 1 |
5. Suppose that in Case B in Table 1, BB exchanges 4S for 4R with BZ.
(a) How much does BB gain in terms of R?
(b) How much does BB gain in terms of R?
(c) What is the range for mutually beneficial trade?
(d) How much would each country gain in terms of R if they exchanged 4S for 6R instead?
6. Using the information for Case B in Table 1, assume that labour us the only factor of production and is homogeneous?
(a) What is the cost in terms of labour content of producing sugar and rice in BB and BZ?
(b) What is the price (in BB dollar) of sugar and rice in BB if the wage rate is $6?
(c) What is the price (in BZ dollars) of sugar and rice in BZ if the wage rate is $1?
7. Consider Case B in Table 1.
(a) Plot the production frontiers of BB and BZ.
(b) What is the relative price of sugar (Ps/Pr) in BB and in BZ under autarky?
(c) What is the relative price of rice (Pr/Ps) in BB and BZ under autarky?
(d) Assuming that the no-trade or autarky is 3S and ¾R in BB and ½S and 1R in BZ. Assume also that with the opening of trade BB exchanges 1S for 1R with BZ. Show graphically for BB and BZ the autarky point of production and consumption, the point of production and consumption with trade, and the gains from trade.
Expert Answer:
A Case A US has absolute advantage in sugar as it can produce more sugar per hour than UK It also me... View the full answer
