ABSTRACT
NYASHA
ECS3702 EXAM PACK UPTO 2020 JUNE
ECS3702
INTERNATIONAL
TRADE
, ECS 3702: INTERNATIONAL TRADE
MAY/JUNE 2020 EXAM MEMO
COMPILED BY NYASHA
0641227196
Question 1
,(a) Absolute advantage exists when one nation is more efficient than another in the
production of one commodity while absolute disadvantage is when that same nation is less
efficient in the production of a second good or commodity than the other nation.
Scenario A:
• South Africa has an absolute advantage the production of gold (it produces 8 tons per
hour as compared to the 2 ton/hr of Namibia).
• In the production of gold, Namibia thus has an absolute disadvantage.
• In Fish, South Africa has an absolute disadvantage while Namibia has an absolute
advantage (It can produce 4 tons per hour compared to 2 tons per hour by South
Africa.
Scenario B
• South Africa has an absolute advantage in the production of both goods(both numbers
higher) 8 Gold and 4 Fish
• Namibia has an absolute disadvantage in both goods (both numbers less) 4 Gold and 2
Fish.
(b)
Scenario A
South Africa Namibia
Gold [ton/hr] 8 뜐ᤄ ] 2 ]
, Fish [ton/hr] 2 ] 4 뜐 ᤄ]
Scenario B
South Africa Namibia
Gold [ton/hr] 8 뜐 ᤄ] 4 뜐 ᤄ]
Fish [ton/hr] 4 ] 2 ]
According to the law of comparative advantage, even if one nation is less efficient than the
other nation there is still a basis for mutually beneficial trade through specializing in producing
the good with the smallest disadvantage.
Scenario A,
• South Africa has a comparative advantage in the production of gold
• Namibia has a comparative disadvantage in gold because it has to sacrifice 2 tons of
fish to produce the same ton of gold.
• Namibia has a comparative advantage in the production of fish
• South Africa’s comparative disadvantage lies in fish as it gives
Scenario B
• Case of equal advantage as the opportunity costs in both countries are exactly the same.
In order to produce a ton of gold, both countries have to give up 0.5 fish and to produce
a ton of fish, both countries give up 2 tons of gold. In this case, no mutually beneficial
trade can take place.
NYASHA
ECS3702 EXAM PACK UPTO 2020 JUNE
ECS3702
INTERNATIONAL
TRADE
, ECS 3702: INTERNATIONAL TRADE
MAY/JUNE 2020 EXAM MEMO
COMPILED BY NYASHA
0641227196
Question 1
,(a) Absolute advantage exists when one nation is more efficient than another in the
production of one commodity while absolute disadvantage is when that same nation is less
efficient in the production of a second good or commodity than the other nation.
Scenario A:
• South Africa has an absolute advantage the production of gold (it produces 8 tons per
hour as compared to the 2 ton/hr of Namibia).
• In the production of gold, Namibia thus has an absolute disadvantage.
• In Fish, South Africa has an absolute disadvantage while Namibia has an absolute
advantage (It can produce 4 tons per hour compared to 2 tons per hour by South
Africa.
Scenario B
• South Africa has an absolute advantage in the production of both goods(both numbers
higher) 8 Gold and 4 Fish
• Namibia has an absolute disadvantage in both goods (both numbers less) 4 Gold and 2
Fish.
(b)
Scenario A
South Africa Namibia
Gold [ton/hr] 8 뜐ᤄ ] 2 ]
, Fish [ton/hr] 2 ] 4 뜐 ᤄ]
Scenario B
South Africa Namibia
Gold [ton/hr] 8 뜐 ᤄ] 4 뜐 ᤄ]
Fish [ton/hr] 4 ] 2 ]
According to the law of comparative advantage, even if one nation is less efficient than the
other nation there is still a basis for mutually beneficial trade through specializing in producing
the good with the smallest disadvantage.
Scenario A,
• South Africa has a comparative advantage in the production of gold
• Namibia has a comparative disadvantage in gold because it has to sacrifice 2 tons of
fish to produce the same ton of gold.
• Namibia has a comparative advantage in the production of fish
• South Africa’s comparative disadvantage lies in fish as it gives
Scenario B
• Case of equal advantage as the opportunity costs in both countries are exactly the same.
In order to produce a ton of gold, both countries have to give up 0.5 fish and to produce
a ton of fish, both countries give up 2 tons of gold. In this case, no mutually beneficial
trade can take place.
