Answer to Question #122338 in Macroeconomics for Zemba Siamuleya

Question

Malawi and Zambia each produce both tobacco and maize in thousands of tons, as shown below
Tobacco Maize
Malawi 20 200
Zambia 10 150
Malawi appears to have an absolute advantage in the production of both commodities. Would you advice that trade should still take place between the two countries? Justify your answer.

Answer 1

Yes trade should still take place between the two countries.

This because despite the fact that Malawi has absolute advantage in production of both commodities compared to Zambia. Both countries will still gain by trading each other.

More specifically, countries should import goods if the opportunity cost of importing is lower than cost of producing them locally.