Answer to Question #112661 in Economics for Aqib

Question

Question: You are given the information shown in the table about production relationships in Thailand and China.

Inputs per bushel of rice output Inputs per yard of cloth output
Thailand 75 100
China 50 50

Assumptions: These are the only two commodities, there are constant ratios of input whatever the level of output of rice and cloth, and competition prevails in all markets. Both nations got 300 workers.
Now try to answer the following questions:
a. Does Thailand have an absolute advantage in producing rice? Cloth?
b. Does Thailand have a comparative advantage in producing rice? Cloth?
c. If no international trade is allowed, what price ratio would prevail between rice and cloth within Thailand?
d. If free international trade is open up, what product will Thailand export? Import?
e. Does Thailand gain from trade? Explain it in terms of labor time saved and in terms of more goods obtained. Suppose the exchange rate of rice to cloth between the two nations is 1:1.

Answer 1

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