Output per hour of Production and work Consumption without...

Output per hour of Production and work Consumption without Trade Production with Trade Clocks Hats Clocks Hats Clocks Hats Denmark 6 3 900 150 1,200 0 Belize 1 2 150 100 0 400 Denmark and Belize can produce both clocks and hats. Each country has a total of 200 available labor hours for the production of clocks and hats. The table above shows the output per hour of work, the production and consumption quantities without trade, and the production numbers with trade. If the actual terms of trade are 1 hat for 1.8 clocks and 150 hats are traded, how many clocks will Denmark consume? ? ?. 270 ? ?. 900 OC. 930 OD. 1,200

Transcript

00:01 Question a asks us to identify which of these two countries in the first table here has an absolute advantage in the production of hats and beer.

00:11 So looking at these two countries, it is clear that chile can produce eight hats as opposed to argentina's one hat in one hour or six beers as opposed to argentina's two beers in one hour, and therefore they have an absolute advantage in the production of both goods.

00:29 Question b asks us which country has a comparative advantage in the production of either good.

00:35 Looking at argentina first, it is clear that for every one beer they produce, they are giving up the opportunity to produce two beers, whereas for chile, if you divide 8 by 8, that's 1, and you divide 6 by 8, that's 0 .75.

00:52 So for every one hat that they produce, they give up the opportunity to produce 0 .75 beers.

00:57 In this case, chile would have the comparative advantage in the production of hats because it costs them less to produce.

01:07 Now, in the production of beers, it will cost argentina 0 .5 hats to produce one beer, whereas for chile it will cost them 1 .33 hats to produce one beer.

01:23 So in this case, argentina has the comparative advantage in the production of beer because it costs them less to produce.

01:30 Question c refers to the second table down here, where in the situation, both chile and argentina are not trading but producing for themselves.

01:41 And they're able to produce over 1 ,000 hours of work a total of 7 ,800 hats and a total of 1 ,400 hats and a total of 1 ,400...

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