International agricultural trade UE Past Papers Questions.

Briefly account for assertions and critiques of the theory of comparative advantages.

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Country X has 2,400 units of labour available . It can produce two agricultural goods, oranges and mangoes. The unit labour required for orange production is 6, while the unit of labour required for mango production is 4.

1. Graph country X`s production possibility frontier (PPF)
2. What is the opportunity cost of oranges in terms of mangoes?
3. Assuming country X is in autarky, what would be the price of oranges in terms of mangoes?

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A country will export goods only if it`s cost of producing the good, relative to other goods, is at least as low as in other countries.

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If international trade takes place as a result of comparative advantage, it will increase the average well-being of people in participating countries.

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Countries gain from trade because world output can rise when each country specializes in what it does relatively well.

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