Benefit From Trade.
Check Your Understanding
By Esteban Ramirez
Answers
1. Brazil has the absolute advantage in producing beef and the United States has the
absolute advantage in autos. The opportunity cost of producing one pound of beef in
Brazil is 1/10 of an auto; in the United States it is 3/4 of an auto.
2. France has an absolute advantage in the production of both sweaters and wine. You
can tell because it takes France less labor to produce a unit of the good.
3. (a) In Germany, it takes fewer workers to make either a television or a video camera.
Germany has an absolute advantage in the production of both goods.
(b) Producing an additional television in Germany requires three workers. Shifting those
three German workers will reduce video camera production by 3/4 of a camera.
Producing an additional television set in Poland requires six workers, and shifting those
workers from the video cameras reduces the output of video cameras by 6/12 of a
camera, or 1/2. Thus, the opportunity cost of producing televisions is lower in Poland, so
Poland has the comparative advantage in the production of televisions.
(c) Producing a video camera in Germany requires four workers, and shifting those four
workers away from television production has an opportunity cost of 4/3 television sets.
Producing a video camera in Poland requires 12 workers, and shifting those 12 workers
away from television production has an opportunity cost of two television sets. Thus, the
opportunity cost of producing video cameras is lower in Germany, and video cameras
will be Germany's comparative advantage.
(d) In this example, absolute advantage differs from comparative advantage. Germany
has the absolute advantage in the production of both goods, but Poland has a
comparative advantage in the production of televisions.
(e) Germany should specialize, at least to some extent, in the production of video
cameras, export video cameras, and import televisions. Conversely, Poland should
specialize, at least to some extent, in the production of televisions, export televisions,
and import video cameras.
4. (b) France has an absolute advantage in green beans because it takes less labor to
produce green beans (two hours compared to four hours in Tunisia). Tunisia has an
absolute advantage in tomatoes because it takes less labor to produce green beans
(one hour compared to two in France).
(c) France has a comparative advantage in green beans because its opportunity cost for
one unit of green beans is one tomato, whereas in Tunisia the opportunity cost is four
tomatoes. Tunisia has a comparative advantage in tomatoes because its opportunity
cost of a tomato is one-fourth units of green beans, whereas in France the opportunity
cost is one unit of green beans.
(d) If France produced 10 tomatoes, it would have to give up the production of 10 green
beans. But if France trades for the 10 tomatoes, in this case it would give up only five
green beans. France's gains from trade would be five green beans. If Tunisia produced
the five green beans on its own, it would give up the production of 20 tomatoes. If
Tunisia trades for the green beans, it will give up 10 tomatoes to get the five green
beans. So Tunisia will gain 10 tomatoes.
