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