1. If the two nations do not trade, how much wool and chocolate is produced?
- Australia: 0.025 million tons of wool, 0.0375 million tons of chocolate
- Switzerland: 0.0125 million tons of wool, 0.05 million tons of chocolate
- Total: 0.0375 million tons of wool, 0.0875 million tons of chocolate
2. Round to one decimal place (calculate comparative advantage in the production of wool; calculate absolute advantage in the production of chocolate).
- Comparative advantage in wool: Australia (opportunity cost of wool is 0.67 chocolate per wool vs. Switzerland’s 4 chocolate per wool)
- Absolute advantage in chocolate: Switzerland (produces 0.05 million tons vs. Australia’s 0.0375 million tons)
3. The two countries decide to trade. Fill in the following table.
- Wool: Australia exports, Switzerland imports
- Chocolate: Switzerland exports, Australia imports
4. Will the countries gain from trading? If so, how?
- Yes. Both countries gain by specializing in the good for which they have a comparative advantage and trading. Australia produces more wool and less chocolate; Switzerland produces more chocolate and less wool. Through trade, both can consume beyond their own production possibilities, increasing total output and consumption.
Parent Tip: Review the logic above to help your child master the concept of comparative advantage worksheet.
