6. Suppose Afghanistan and South Korea are countries that both produce coffee and tea which are sold for the same price. Below are various combinations the countries can produce using the same amount of capital and labour. Afghanistan South Korea Tea Coffee Coffee (Million (Million bags) bags) bags) (Million 117 117 867 Tea (Million bags) Production and consumption before trade 67 (A) Consumption available after trade (B) 217 127 127 Table 1. A Table showing production in Afghanistan and South Korea C. 1,017 a. Using the information above, draw a PPF (Production Possibilities Frontiers) curve for Afghanistan showing the production and consumption without trade and the production and consumption with trade (point A and B). b. Explain the concept of comparative advantage using your own words then based on the information above, calculate which country has a comparative advantage in coffee production and explain why you think the country has a comparative advantage in coffee production. Explain the concept of absolute advantage in your own words. Based on the theory of absolute advantage, which country do you think should specialise in Coffee production and why do you think so? d. Both theories of comparative advantage and absolute advantage help economists to understand specialization and international trade better. Explain how specialization of production can help these two countries in international trade. e. Recently, the governments of Afghanistan and South Korea decided to improve trade between the two countries by signing a trade agreement. Explain 2 effects this may have on South Korea's economy. f. Economists in Afghanistan are concerned that too many tea products are exported leading to a shortage of tea products in the country. Explain 2 policies that the Afghanistan government can put in place to address this issue.
6. Suppose Afghanistan and South Korea are countries that both produce coffee and tea which are sold for the same price. Below are various combinations the countries can produce using the same amount of capital and labour. Afghanistan South Korea Tea Coffee Coffee (Million (Million bags) bags) bags) (Million 117 117 867 Tea (Million bags) Production and consumption before trade 67 (A) Consumption available after trade (B) 217 127 127 Table 1. A Table showing production in Afghanistan and South Korea C. 1,017 a. Using the information above, draw a PPF (Production Possibilities Frontiers) curve for Afghanistan showing the production and consumption without trade and the production and consumption with trade (point A and B). b. Explain the concept of comparative advantage using your own words then based on the information above, calculate which country has a comparative advantage in coffee production and explain why you think the country has a comparative advantage in coffee production. Explain the concept of absolute advantage in your own words. Based on the theory of absolute advantage, which country do you think should specialise in Coffee production and why do you think so? d. Both theories of comparative advantage and absolute advantage help economists to understand specialization and international trade better. Explain how specialization of production can help these two countries in international trade. e. Recently, the governments of Afghanistan and South Korea decided to improve trade between the two countries by signing a trade agreement. Explain 2 effects this may have on South Korea's economy. f. Economists in Afghanistan are concerned that too many tea products are exported leading to a shortage of tea products in the country. Explain 2 policies that the Afghanistan government can put in place to address this issue.
Chapter18: International Trade And Comparative Advantage
Section: Chapter Questions
Problem 2TY
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E and f part
Transcribed Image Text:6. Suppose Afghanistan and South Korea are countries that both produce coffee and tea which are sold for the same price.
Below are various combinations the countries can produce using the same amount of capital and labour.
Afghanistan
South Korea
Coffee
Tea
(Million
(Million
bags)
bags) bags)
117
117
867
(Million
bags)
Production and consumption before trade 67
(A)
Consumption available after trade (B)
Tea
217
127
127
Table 1. A Table showing production in Afghanistan and South Korea
d.
Coffee
(Million
1,017
a. Using the information above, draw a PPF (Production Possibilities Frontiers) curve for Afghanistan showing the production and consumption without trade and the
production and consumption with trade (point A and B).
b. Explain the concept of comparative advantage using your own words then based on the information above, calculate which country has a comparative advantage
in coffee production and explain why you think the country has a comparative advantage in coffee production.
C. Explain the concept of absolute advantage in your own words. Based on the theory of absolute advantage, which country do you think should specialise in Coffee
production and why do you think so?
Both theories of comparative advantage and absolute advantage help economists to understand specialization and international trade better. Explain how
specialization of production can help these two countries in international trade.
e. Recently, the governments of Afghanistan and South Korea decided to improve trade between the two countries by signing a trade agreement. Explain 2 effects
this may have on South Korea's economy.
f. Economists in Afghanistan are concerned that too many tea products are exported leading to a shortage of tea products in the country. Explain 2 policies that the
Afghanistan government can put in place to address this issue.
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