Answer to Question #74148 in Macroeconomics for maureen Haatimba
Zambia and Malawi are able to produce maize and fish using equivalent resources as shown below: 10 Marks
Zambia Malawi maize fish maize fish 10 0 50 0 8 2 40 5 6 4 30 10 4 6 20 15 2 8 10 20 0 10 0 25
a. Which country has an absolute advantage in the production of maize? b. Which country has an absolute advantage in the production of fish? c. Which country has a comparative advantage in the production of maize? d. Which country has a comparative advantage in the production of fish? e. Explain the reason for international trade based on comparative advantage?
a) Zambia b) Malawi c) Zambia d) Zambia e) According to the theory of comparative advantages, the existence of an absolute advantage in the national production of a product is not a prerequisite for the development of international trade. International trade is beneficial for any country and for the one that has no advantage at all and for the one that has advantages over all goods. In each country (without taking into account absolute advantages), there is always a product whose production is more efficient (relative to the cost ratio) than the production of the rest of the goods, ie an international exchange is possible and desirable, if countries specialize in the production of those goods that they can produce at relatively lower costs.
In other words: the basis for the emergence and development of international trade can be exclusively the difference in the relative costs of production of these goods, regardless of the absolute value of these costs. The principle of comparative advantages is a guideline for the country's specialization: the total output will be greatest when each product will be produced by a country with lower relative, that is, alternative costs (relative, that is, alternative, price).