Answer to Question #179227 in Economics for Amna

Question

Below are the hypothetical production possibilities tables for Bahrain and KSA.

Product Bahrain’s production alternatives KSA’s production alternatives

A B C D R S T U

Apple 0, 40, 80, 120 0, 40, 80, 120

Plums 30, 20, 10, 0 120, 80, 40, 0

a. Suppose the optimum product mixes before specialization and trade were alternative B in

Bahrain and S in KSA. What would be gains from specialization and trade?

b. What is each country’s cost ratio of producing plums and apples?

c. Which nation should specialize in which product?

Answer 1

a. Both countries can produce and receive more products at lower cost as a result of specialization and trade.

b. Each country’s cost ratio of producing plums and apples are:

2 apples per 1 plum for Bahrain,

0.5 apple per 1 plum for KSA.

c. Bahrain should specialize in apples, KSA should specialize in plums.