Explore BrainMass

Comparative/absolute advantages

Techland and Clothworld are two countries with the same number of workers. In Techland each worker can produce 4 units of technology OR 4 units of clothing. Each resident in Techland currently consumes 2 units of technology and 2 units of clothing. In Clothworld each worker can produce 3 units of technology OR 12 units of clothing. Clothworld's residents consume 1 unit of technology and 8 units of clothing. (pretend each country only has one worker each, it makes the math easier.)

1. Does either country have an absolute advantage?

2. Which country has a comparative advantage in technology and by what amount.

3. Which country has a comparative advantage in clothing and by what amount.

4. Is there a basis for trade? If so, what would be an example (using numbers) of trade that would benefit both countries. (Keep each country's consumption of the good they DO have a comparative advantage in the same as before trade occurs, and see if trade lets them consume more of the other good). ASSUME DIRECT TRADE, NO "MIDDLE MAN".

Solution Summary

The solution answers the question(s) below.