Post on 02-Jan-2016
description
Reasons for Trade: Absolute & Comparative Advantage
Reasons for Trade: Examples of Absolute and Comparative
Advantage
Table 1: Production of hardware and software products by Utopia and Happyland
Happyland’s absolute advantage
Table 1: Production of hardware and software products by Utopia and Happyland
Utopia’s absolute advantage
Table 1: Production of hardware and software products by Utopia and Happyland
PP
Cs
Utopia’s comparative advantage
Hardware
Software
Utopia 200 1000
Happyland 100 150
0
1 unit Hardware = 5 units Software
1 unit Hardware = 15 units Software
Happyland’s comparative advantage
Hardware
Software
Utopia 200 1000
Happyland 100 150
0
1 unit Software = 0.2 units Hardware
1 unit Software = 0.06 units Hardware
Reasons for T
rade
Before SpecializationA = 100 Hardware and 500 Software
After SpecializationB = 200 Hardware
After Trading 100 Hardware for 900 Software C = 100 Hardware & 900 Software
Reason for T
radce
Before SpecializationX = 50 Hardware and 750 Software
After SpecializationY = 1500 software
After Trading 750 Software for 83 HardwareZ = 83 Hardware & 750 Software