The following table shows the hourly output per worker in two industries in Chile and Argentina:
|
Output per Hour of Work |
|
Hats |
Beer |
| Chile |
$8.00 |
6 |
| Argentina |
1 |
2 |
a. Explain which country has an absolute advantage in the production of hats and which country has an absolute advantage in the production of beer.
b. Explain which country has a comparative advantage in the production of hats and which country has a comparative advantage in the production of beer.
c. Suppose that Chile and Argentina currently do not trade with each other. Each has 1,000 hours of labor to use producing hats and beer, and the countries are currently producing the amounts of each good shown in the following table:
|
Hats |
Beer |
| Chile |
$7,200.00 |
600 |
| Argentina |
600 |
800 |
Using this information, give a numerical example of how Chile and Argentina can both gain from trade.
Assume that after trading begins, one hat can be exchanged for one barrel of beer.