Th4.1: Numerical Example Two

Question 1

Refer to PP

Look at Graph 11. Who has an absolute advantage in both cars and umbrellas?

Answer 1

Spain

Question 2

Refer to PP.

Look at Graph 11. Who has a comparative advantage in cars and how?

Answer 2

the UK as they are only 1/3 worse at producing cars and 1/2 as good at producing wine, and so they should specialise in cars

Question 3

What should Spain put most effort into?

Answer 3

producing umbrellas (80%) and produce some cars

Question 4

What will these lead to?

Answer 4

an increase in total production in both cars and umbrellas