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    comparative advantage problem

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    Given the following answer these questions:
    Alfazia: 2 units of corn = 3 units of cheese
    Radamia: 1 unit of corn = 2 units of cheese
    Uthania: 1 unit of corn = 1 unit of cheese

    Radamia: 2 DVD players = 3 watches
    Uthania: 1 DVD player = 2 watches
    Suntize: 2 DVD players = 5 watches

    1.) For Rodamia, did you decide that they should export corn or cheese?
    Why did you choose what you chose?
    What are the costs involved?
    2.) What is Alfazia's cost of one unit of cheese?
    What is Ultania's costs for one unit of watches?

    3.) What did you decide to import? (DVDs or Watches?)
    Import from where? Why did you decide on this combination?

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    Solution Preview

    This is a comparative advantage problem. We solve it by looking at the relative costs of producing each good in each country. A country should export those goods in which it has a comparative advantage, and import those in which it does not.

    For corn, we can see that it is more costly in terms of cheese to make it in Radamia. It is least costly to make it in Uthania, and Alfazia is in the middle, with 1.5 units of cheese per unit of corn. To dtermin ...

    Solution Summary

    Comparative advantage is used to determine patterns of trade is examined.