Understanding comparative advantage is crucial for grasping international trade dynamics. This article provides answers and explanations to a common worksheet focusing on this concept, using the example of England and Spain producing cheese and bread. We’ll explore absolute and comparative advantage, specialization, and the impact of trade on consumption.
Analyzing Absolute and Comparative Advantage
Question 1: Does either country have an absolute advantage?
Answer: England has an absolute advantage in the production of both goods.
The table shows England can produce more cheese (40 pounds vs. 10 pounds) and more bread (10 loaves vs. 5 loaves) than Spain using the same resources. Absolute advantage refers to the ability to produce more of a good using the same or fewer resources.
Question 2: Which country has a comparative advantage in bread?
Answer: Spain has a comparative advantage in bread.
Comparative advantage considers the opportunity cost of producing a good. Spain’s opportunity cost of producing one loaf of bread is 2 pounds of cheese (10 pounds cheese / 5 loaves bread). England’s opportunity cost is 4 pounds of cheese (40 pounds cheese / 10 loaves bread). Spain sacrifices less cheese to produce bread, giving it the comparative advantage.
Question 3: Which country has a comparative advantage in cheese?
Answer: England has a comparative advantage in cheese.
The opportunity cost for England to produce one pound of cheese is 1/4 loaf of bread (10 loaves bread / 40 pounds cheese). For Spain, it’s 1/2 loaf of bread (5 loaves bread / 10 pounds cheese). England gives up less bread to produce cheese.
Specialization and Trade
Question 4: How much will England produce with specialization?
Answer: C) 40 pounds of cheese and 0 loaves of bread
England specializes in cheese, where it has the comparative advantage, maximizing its production to 40 pounds.
Question 5: How much will Spain produce with specialization?
Answer: B) 5 loaves of bread and 0 pounds of cheese
Spain specializes in bread, producing its maximum of 5 loaves.
Consumption After Trade
Question 6: How much bread does England consume after trade?
Answer: 4 loaves of bread.
Question 7: How much cheese does England consume after trade?
Answer: 34 pounds of cheese.
Question 8: How much bread does Spain consume after trade?
Answer: 3 loaves of bread.
Question 9: How much cheese does Spain consume after trade?
Answer: 6 pounds of cheese.
Gains from Trade
Question 10: Is Spain better off after trade?
Answer: Yes, because Spain consumes more of both goods.
Question 11: Is England better off after trade?
Answer: Yes, because England consumes more of both goods.
Both countries benefit from trade as they consume beyond their individual production possibilities curves. Specialization and trade allow them to access more of both goods than they could produce in isolation. This highlights the fundamental principle of comparative advantage and the gains from international trade.
