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21 May, 23:08

Suppose that a worker in Boatland can produce either 5 units of wheat or 25 units of fish per year, and a worker in Farmland can produce either 25 units of wheat or 5 units of fish per year. There are 10 workers in each country. Political pressure from the fish lobby in Farmland and from the wheat lobby in Boatland has prevented trade between the two countries on the grounds that cheap imports would kill the fish industry in Farmland and the wheat industry in Boatland. As a result, Boatland produces and consumes 25 units of wheat and 125 units of fish per year while Farmland produces and consumes 125 units of wheat and 25 units of fish per year. If the political pressures were overcome and trade was to occur, each country would completely specialize in the product in which it has a comparative advantage. If trade were to occur, the combined output of the two countries would increase by

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  1. 22 May, 00:48
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    Answer: 200 units

    Explanation:

    A country has a comparative advantage in producing a good if the opportunity cost of producing that good is lower in that country as compared to other country. If a nation has comparative advantage in the production of some good then it is specialized in the production of that good.

    Once the political pressure is removed and trade will take place,

    The Boatland has a comparative advantage in the production of fish. Hence, Boatland is trading in fish is as follows:

    125 - 25 = 100

    On the other hand, Farmland has a comparative advantage in the production of wheat. Hence, Farmland is trading in fish is as follows:

    125 - 25 = 100

    Hence, the combined output of the two countries would increase by 100 + 100 = 200 units

    100 units of fish and 100 units of wheat
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