Answer to Question #134872 in Macroeconomics for December

Question

Question 15 is based on the table below which shows the production of maize and bananas for
country 1 and 2:
Maize Bananas
Country 1 400kg 200kg
Country 2 900kg 300kg
15. To benefit from trade country 1 should produce_____ and country 2 should
produce___________.
[1] bananas; maize
[2] maize; bananas
[3] maize; maize
[3] cannot be determined

Answer 1

Answer 4: cannot be determined. Country 2 is better at producing both maize and bananas. Therefore for both countries to trade and benefit from trade the theory of comparative advantage and opportunity cost play a major role. A Country is said to have a comparative advantage in whichever good has the lowest opportunity cost. Each country should produce goods for which its domestic opportunity costs are lower than the domestic opportunity costs of other nations and exchange those goods for products that have higher domestic opportunity costs compared to other nations. Given that we only have the differences in productivity of the two countries while comparative advantage requires differences in opportunity costs, which is not given, the goods each country should produce cannot be determined.