Two countries, Marland and Teckana, can produce either clothing or food using all their available resources at constant opportunity cost. The table below shows the daily production of clothing or food in Marland and Teckana. Clothing Food Marland 120 20 Teckana 80 20 (a) Which country has the absolute advantage in producing food? Explain. (b) Which country has the comparative advantage in producing food? Explain. (c) Assume the two countries specialize based on their comparative advantage. If the two countries engage in trade and one unit of food is exchanged for 5 units of clothing, will these terms of trade be mutually beneficial? Explain. (d) Suppose Teckana invented new equipment to only increase the production of clothing. (i) Draw a correctly labeled graph of Teckana’s initial production possibilities curve, with clothing on the horizontal axis and food on the vertical axis. Plot the numerical values above on the graph. (ii) Show the effect of the new equipment on Teckana’s production possibilities curve.
Two countries, Marland and Teckana, can produce either clothing or food using all their available resources at constant
| Clothing | Food | |
|---|---|---|
| Marland | 120 | 20 |
| Teckana | 80 | 20 |
(a) Which country has the
(b) Which country has the
(c) Assume the two countries specialize based on their comparative advantage. If the two countries engage in trade and one unit of food is exchanged for 5 units of clothing, will these terms of trade be mutually beneficial? Explain.
(d) Suppose Teckana invented new equipment to only increase the production of clothing.
(i) Draw a correctly labeled graph of Teckana’s initial
(ii) Show the effect of the new equipment on Teckana’s production possibilities curve.
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