CB2 - Sept 2008, qus35

Discussion in 'CB2' started by Bharti Singla, Mar 26, 2021.

  1. Bharti Singla

    Bharti Singla Senior Member

    Country A takes 20 hrs to produce one unit of good X and 5 hrs for good Y. Country B takes 30 hrs to produce one unit of good X and 15 hrs for good Y.

    Qus. State whether international trade will take place between the two countries if the terms of trade were one unit of good Y for one unit of good X.

    Can anyone please explain how we solve this? The qus consists of only one mark.
     
  2. Dave Johnson

    Dave Johnson ActEd Tutor Staff Member

    This is a question about comparative advantage, which is covered in chapter 24 of the textbook. You need to work out which country will produce good X and which will produce good Y according to the theory of comparative advantage, and then the range of prices whereby trade will occur.

    This is a standard question with no pitfalls, so this should be enough information to get you started.
     

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