Question 1 (i)(b)
Comparative advantage: Brazil and Vietnam
3 marks
- Time to write
- About 6 minutes
Question
Question 1 (i)(b) · 3 marks- The table below gives the number of units of wheat and cloth that two countries: Brazil and Vietnam: can produce in one day when they use all of their available resources:
| Country | Wheat (units/day) | Cloth (units/day) |
|---|---|---|
| Brazil | 48 | 24 |
| Vietnam | 36 | 12 |
- Which country has the comparative advantage in each good?
Reworded from the university paper: names and figures differ, the task is the same. The original paper belongs to the University of Delhi. See DU's question bank.
Before you write
Read off the question and its marks
Read from the question
- (i)–(b)2 items, each marked on its own: give each its share.
What the paper leaves open
The punctuation around the two country names (a colon, then a dash) is as printed.
Write it in this order
- 1 Opportunity cost of each good in each country 1½ marks 3 min
- 2 Comparative advantage in wheat and in cloth, with the reason 1½ marks 3 min
Try it first. About 6 minutes for 3 marks. Write it out, then open the solution.
Solution
Hover or tap a marked figure, like 72,000, to see how it is made and where else it appears.
Rule. A country has a comparative advantage in a good when it can produce that good at a lower opportunity cost than the other country; the opportunity cost of a good is the amount of the other good that must be given up to produce one more unit of it.
Opportunity costs. In one day Brazil can make 48 wheat or 24 cloth, and Vietnam 36 wheat or 12 cloth. Assuming each country can move resources between the goods at a constant rate (straight-line frontiers):
| Country | Opportunity cost of 1 wheat | Opportunity cost of 1 cloth |
|---|---|---|
| Brazil | 24 / 48 = 0.5 cloth | 48 / 24 = 2 wheat |
| Vietnam | 12 / 36 = 0.33 cloth (one-third) | 36 / 12 = 3 wheat |
Wheat. One unit of wheat costs Vietnam 0.33 cloth but costs Brazil 0.5 cloth. Vietnam gives up less, so Vietnam has the comparative advantage in wheat.
Cloth. One unit of cloth costs Brazil 2 wheat but costs Vietnam 3 wheat. Brazil gives up less, so Brazil has the comparative advantage in cloth.
Answer. Vietnam has the comparative advantage in wheat and Brazil in cloth, although Brazil has the absolute advantage in both. Each country should specialise in the good it makes at the lower opportunity cost (Vietnam in wheat, Brazil in cloth) and trade; total output can then rise, so both can gain. Unless the two countries' opportunity costs are equal, a comparative advantage in one good means a comparative disadvantage in the other, since a country's two opportunity costs are reciprocals of each other.
Where the 3 marks sit
| # | Component | Marks |
|---|---|---|
| 1 | Opportunity cost of each good in each country | 1.5 |
| 2 | Comparative advantage in wheat and in cloth, with the reason | 1.5 |
| Total | 3 |
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