Below is a hypothetical production possibilities table for Argentina and India. Each country can produce Beef and Cotton. Assume that before specialization and trade (i.e. if they are each self sufficient), Argentina produces 20 Beef and 40 Cotton and India produces 15 Beef and 180 Cotton:
Production Possibilities Table - 8 hours of production
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Argentina
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India
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Beef
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Cotton
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Beef
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Cotton
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|
|
0
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80
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|
0
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240
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|
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10
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60
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|
15
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180
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|
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20
|
40
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|
30
|
120
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|
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30
|
20
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|
45
|
60
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|
|
40
|
0
|
|
60
|
0
|
Graph the PPF for each of the two countries separately and using the information above, please answer the following:
- Opportunity-cost ratios: Calculate the opportunity cost ratio for these two goods in Argentina. Calculate the opportunity cost ratio for these two goods in India.
- Absolute vs. comparative advantage: Which country has an absolute advantage in the production of Beef? Which country has an absolute advantage in the production of Cotton? Which country has a comparative advantage in the production of Beef? Which country has a comparative advantage in the production of Cotton?
Suppose that instead of being self sufficient, these two countries decide to each specialize in the good in which they have the comparative advantage and then trade for the other good. Assume that the country that specializes in Beef trades 17 Beef to the other country (which specializes in Cotton) for 51 Cotton.
- What are the gains from specialization and trade for Argentina?
- What are the gains from specialization and trade for India?