Solved Name: 3. Comparative Advantage and Trade: Consider | Chegg.com - Free Printable

Let’s solve Question 3: Comparative Advantage and Trade step by step using the given chart:

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Given Chart:

| Country | Soccer Balls | Economics Textbooks |
|-----------|--------------|---------------------|
| Saintopia | 300 | 100 |
| Irvonia | 400 | 200 |

*(These numbers represent the maximum output each country can produce if it dedicates all resources to one good.)*

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## A. What is the opportunity cost for Saintopia to produce an Economics Textbook?
Answer: 3 Soccer Balls

✔ Explanation:
Opportunity cost = What you give up / What you gain.

Saintopia can produce either:
- 300 Soccer Balls, OR
- 100 Economics Textbooks.

So, to produce 1 Economics Textbook, Saintopia gives up:
> 300 Soccer Balls ÷ 100 Textbooks = 3 Soccer Balls per Textbook

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## B. Who has the absolute advantage in Soccer Balls?
Answer: Irvonia

✔ Explanation:
Absolute advantage means producing more of a good with the same resources.

Irvonia produces 400 Soccer Balls, while Saintopia produces only 300 → So Irvonia has the absolute advantage.

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## C. Who has the comparative advantage in Soccer Balls?
Answer: Saintopia

✔ Explanation:
Comparative advantage is about lower opportunity cost.

We need to calculate opportunity cost of producing 1 Soccer Ball for each country.

For Saintopia:

To produce 300 Soccer Balls, they give up 100 Textbooks.
→ Opportunity cost of 1 Soccer Ball = 100/300 = 1/3 Textbook

For Irvonia:

To produce 400 Soccer Balls, they give up 200 Textbooks.
→ Opportunity cost of 1 Soccer Ball = 200/400 = 1/2 Textbook

Since 1/3 < 1/2, Saintopia has a lower opportunity cost for producing Soccer Balls → So Saintopia has the comparative advantage in Soccer Balls.

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## D. If both countries specialize and trade, who will manufacture Economics Textbooks?
Answer: Irvonia

✔ Explanation:
Specialization occurs based on comparative advantage.

We already found that:
- Saintopia has comparative advantage in Soccer Balls (OC = 1/3 Textbook per Ball)
- Therefore, Irvonia must have comparative advantage in Economics Textbooks

Let’s verify:

Opportunity cost of 1 Economics Textbook:

- Saintopia: 300/100 = 3 Soccer Balls
- Irvonia: 400/200 = 2 Soccer Balls

→ Irvonia gives up fewer Soccer Balls (2 vs. 3) to make 1 Textbook → Irvonia has lower opportunity cost → comparative advantage in Textbooks

So, Irvonia will specialize in and manufacture Economics Textbooks.

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## E. Is 4 Soccer Balls for 1 Economics Textbook a fair term of trade? Explain why or why not.
Answer: No, it is NOT a fair term of trade.

✔ Explanation:
A “fair” (or mutually beneficial) term of trade must lie between the two countries’ opportunity costs.

Recall:
- Saintopia’s OC of 1 Textbook = 3 Soccer Balls
- Irvonia’s OC of 1 Textbook = 2 Soccer Balls

So, for trade to be beneficial:
→ The price of 1 Textbook should be between 2 and 3 Soccer Balls

If the trade is 4 Soccer Balls for 1 Textbook:
- Irvonia would get 4 Soccer Balls for 1 Textbook → but they only give up 2 Soccer Balls to make 1 Textbook → they’d be losing out (getting less than their opportunity cost).
- Saintopia would pay 4 Soccer Balls for 1 Textbook → but they could make 1 Textbook themselves by giving up only 3 Soccer Balls → so they’re paying more than their own cost → also losing.

Thus, neither country benefits from this trade ratio. It’s outside the range of mutually beneficial terms.

✔ Fair trade terms must be between 2 and 3 Soccer Balls per Textbook.

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## ✔ Final Answers:

A. 3 Soccer Balls
B. Irvonia
C. Saintopia
D. Irvonia
E. No — because the trade term (4 Soccer Balls per Textbook) is outside the range of opportunity costs (2 to 3), so neither country benefits.

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> *Note: Questions 4 and 5 require drawing graphs or completing worksheets, which cannot be rendered here. But if you’d like, I can describe how to draw each graph or explain the worksheet concepts!*