Comparative Advantage
Here
are some hypothetical numbers used to illustrate the ideas of trade-offs,
specialization, and comparative advantage. Assume Sri Lanka, using all her
resources efficiently, can produce either 1,000 bags of rice OR 3,000 bags of
tea. Let's also assume that, using all her resources efficiently, Kenya can
produce either 1,000 bags of rice OR 1,000 bags of tea. Further, assume that
the count
...[Show More]
Here
are some hypothetical numbers used to illustrate the ideas of trade-offs,
specialization, and comparative advantage. Assume Sri Lanka, using all her
resources efficiently, can produce either 1,000 bags of rice OR 3,000 bags of
tea. Let's also assume that, using all her resources efficiently, Kenya can
produce either 1,000 bags of rice OR 1,000 bags of tea. Further, assume that
the countries have similar resource endowments and that, initially, they are
not trading with each other. Therefore, each of the countries has to produce
both rice and tea for its citizens. Suppose that, in the no-trade situation,
Sri Lanka was consuming 400 bags of rice and 1,800 bags of tea, and in the
no-trade situation, Kenya was consuming 500 bags of rice and 500 bags of tea.
Now, let's play a fun game called the
"Trading Game" to figure out whether there is any benefit (in terms
of increased consumption possibilities) for these two countries if they trade
with each other. You are given the following information to start the
"Trading Game". The trading price is set at one bag of rice for two
bags of tea, and Kenya wishes to keep at least 550 bags of rice after trade.
Apply your knowledge of opportunity cost to
identify the comparative advantage enjoyed by each country. Now using your
knowledge of specialization and trade, show in a multi-paragraph essay, that
the two countries can benefit by consuming more of both goods after trade.
Develop a response that includes examples and
evidence to support your ideas, and which clearly communicates the required
message to your audience. Organize your response in a clear and logical manner
as appropriate for the genre of writing. Use well-structured sentences,
audience-appropriate language, and correct conventions of standard American
English
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Published: 2 years ago
Published By: Chelsea Kim
University of Kabianga > Case Study > Comparative Advantage page(s)