Exam (elaborations) ECS3702 MAY/JUNE 2023 ANSWERS, ASSIGNMENTS AND NOTES AND NOTES (ECS3702)

ECS3702 MAY/JUNE 2023 EXAM MEMO




QUESTION 1
(i) Lesotho has an absolute advantage in producing blankets has an
absolute disadvantage in producing shoes while South Africa has
absolute advantage in producing shoes and absolute disadvantage in
producing blankets. This is because using the same resources and
time, Lesotho can produce more blankets commodities than South
Africa and South Africa can produce more shoes than Lesotho.

(ii) According to the theory of absolute advantage, mutually beneficial
trade is possible because for both nations to benefit from trade, each
nation must have an absolute advantage in one of the two
commodities. In this case, Lesotho has an absolute advantage in
producing blankets while South Africa has an absolute advantage in
producing shoes

(iii) Comparative advantage in shoes production

Lesotho
3S=8B
1S=?
1S=2.67B

South Africa
7S=4B
1S=?
1S=0.57B

Therefore, South Africa has a comparative advantage in producing
shoes as the opportunity cost is lower than Lesotho.


Comparative advantage in blankets
Lesotho

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