JNU International doubts......

[MohitG]

Guys Please help me with these
Q1:
The maximum amount of food and cloth that two countries A and B can produce by
using all of the factors of production in their respective countries with the best available
technology is given below in the table :
          .A   .B
Food 500 1200
Cloth 700 800
Suppose A and B agree to a terms of trade ratio of 1 : 1 (i.e. 1 unit of food to be
exchanged for 1 unit of cloth). then the specialization and trade pattern would be
as follows .
(a) A will specialize in food and export food, and import cloth from B
(b) A will specialize in cloth, and export cloth and import food from B
(c) A and B will not trade
(d) A has no comparative advantage and will import food and ,cloth from B

Q2:
The fixed labour requirements per unit of wine and clothing production before trade for
England and Portugal are given below :
          .Wine. Clothing
England 6       10
Portugal 3       5
If trade opens up between England and Portugal, what will be the pattern of trade
according to comparative advantage?
(a) England exports clothing and Portugal exports wine
(b) England exports wine and Portugal exports clothing
(c) Neither country will trade in any good
(d) Cannot say

Q3:
Quantities of labour embodied per unit of goods Xl and X2 in country A are given by
0·3 and 0 ·7, while the same for country B are given by 0.2 and 0·9, Country A,
therefore, enjoys comparative advantage in:
(a) Xl
(b) X2
(c)Neither X1 nor X2
(d)Both X1 and X2

[MohitG]

For Q2 I am getting option (d) - cannot say since both the comparative ratios are equal to 1/2.
For Q3 option (b) - X2

[Arushi :))]

i agree with you on question 3.
for question no. 1;
If there is no trade
then country A ( within the country)
will trade 1.4 units of cloth for 1 unit of food .
and 0.71 units of food for 1 unit of cloth.
Similarly, country B
will trade 0.66 units of cloth for 1 unit of food
and 1.5 units of food for 1 unit of cloth.
If they agree to terms of trade ratio of 1:1,
If country A produces cloth only, then in exchange of 1 unit of cloth it will get 1 unit of food, ear;ier it had to give 1.4 units of cloth for a unit of food.
Similarly, if country B produces food only, it would be beneficial as in exchange of a unit of food, it can get 1 unit of cloth, earlier it had to trade 1.5 units of cloth for a unit of food.
So according to me ,
 (b) A will specialize in cloth, and export cloth and import food from B- this is right...

[MohitG]

Thank you Arushi :)

[Anjali]

Hi Mohit !
For ques 1 , I agree with Aarushi. It should be option ( b ) .
For ques 2 , since only labour requirements are given and not relative price , so it could be option d or c - because there is no comparative advantage here , and also no other reason is mentioned for trade to take place. However , Iam not sure about it. Arushi please guide.
For ques 3 , undoubtedly , it should be "b" .

[Arushi :))]

Yup, for second question ,
even i am confused between c and d.
But the thing is first condition for trade to occur is that the country should have a comparative advantage in production of goods,
But since neither of them is having a comparative advantage, there won't be any trade.
So i m biased towards c.
Both the countries can produce both the goods.And what is actually produced depends on the relative prices of the goods in that country.
I m with option 'c'

[Anjali]

Even I will go for c . But d could also be true , because relative price is not there , and hence taking this fact into consideration , we can conclude that - we cannot say ! :-p
Contrary to this , if you will read question carefully , you will notice that it asks trade pattern based on comparative advantage. And when there is no comparative advantage , we can settle on option c . So even Iam biased towards option c :-p

[Ditro Raychaudhuri]

could someone explain the third question plz its not obvious to mee

[Anjali]

Just compare the opportunity cost , you will get it !

[Ditro Raychaudhuri]

yup got it i am dumb