ECONIMIC CONCEPTS-GLOBAL CUSTOMERS - Coursework Example

This means that by resorting to produce a chicken, Michelle would forego the value of producing 4 pounds of potato. Answer 3 The opportunity cost of James of potato producing is (=40/80), i.e. ? chicken per pound of potato. Thus by producing 1 pound of potato, James would forgo the value of producing ? number of chicken per year. Answer 4 The opportunity cost of chickens production for James is (=80/40), i.e. 2 pounds of potato per chicken. This means that James would forgo the value of producing 2 pounds of potato for choosing to produce 1 chicken.

Answer 5 The absolute advantage of the activities of producing potatoes and chickens by Michelle and James could be determined by comparing their production of chickens and potatoes per unit time, i.e. 1 year. This could be determined from the table given below.   Potatoes (pounds) Chickens (nos.) Michelle 200 50 James 80 40 It could be observed that Michelle could produce 4 pounds of potato per chicken in one year while James could produce 2 pounds of potato per chicken in the same time period.

For producing both potatoes and chickens, Michelle has an absolute benefit compared to James in the volume of potatoes and the number of chicken produced by them in one year. Answer 6 The comparative advantage would be attained if the opportunity cost is lower as compared to that of the others. . This means that James have attained comparative advantage over Michelle as he has sacrificed lesser value as compared to Michelle for producing chickens. Answer 8 Assuming Michelle specializes in producing potatoes and James specializes in producing chickens, a trading rate of 2.

5 pounds of potatoes in exchange of 1 unit of chicken would help to determine whether it’s better off for them. This trading rate is better than the opportunity cost of 1 chicken for 4 pounds of potato produced by Michelle. Thus Michelle would be better off in trading with his specialization. Also, the trading rate is better than 2 pounds of potato for 1 chicken produced by James. Thus James would also be better off in this situation. Answer 9 The above findings could be narrated to the business, society and the nations, at large to effect use of trade theory that explain the difference between absolute advantage and the comparative advantage.

It has been observed that although James does not hold absolute advantage in production of either potatoes or chickens, he has still been able to attain a better off position in trading of chickens. This is because James has focused on his specialized area where he holds a comparative advantage over Michelle. The same is applicable to the business, society and the nations. The business, society and the nations which lag in their production volumes per unit time as compared to others may not hold absolute advantage over others.

The benefits of trade, however, do not depend on the absolute advantage but depends on the comparative advantage (Maneschi, 1998). By specializing on trade in which entities have comparative