Question

Suppose that a worker in Boatland can produce either 5 units of wheat or 25 units of fish per year, and a worker in Farmland can produce either 25 units of wheat or 5 units of fish per year. There are 10 workers in each country. Political pressure from the fish lobby in Farmland and from the wheat lobby in Boatland has prevented trade between the two countries on the grounds that cheap imports would kill the fish industry in Farmland and the wheat industry in Boatland. As a result, Boatland produces and consumes 25 units of wheat and 125 units of fish per year while Farmland produces and consumes 125 units of wheat and 25 units of fish per year. If the political pressures were overcome and trade was to occur, each country would completely specialize in the product in which it has a comparative advantage. If trade were to occur, the combined output of the two countries would increase by

a. 25 units of wheat and 25 units of fish.
b. 50 units of wheat and 50 units of fish.
c. 75 units of wheat and 75 units of fish.
d. 100 units of wheat and 100 units of fish.

Answer 1

d. 100 units of wheat and 100 units of fish.

Step-by-step explanation:

In the actual case, we have 10 weorkers in each country, 5 of them producing the product in which they have a competitive advantage and five of them in the other product, so, we have

Boatland => 5 workers producing wheat=5*5= 25 wheat/ year

5 workers producing fish= 5*25= 125 fish / year

Farmland => 5 workers producing wheat=5*25= 125 wheat/ year

5 workers producing fish= 5*5= 25 fish / year

Combined output:

• Wheat= 25+125 = 150
• Fish: 125+25 = 150

If they specialize in the one product that each one has competitive advantage on:

• Boatland's Annual output= 10 workers producing 25 fish/ year = 250 fishes/ year.
• Farmland's Annual output= 10 workers producing 25 wheat/ year = 250 wheat/ year.

The combined output is 250 of each product which is 100 units more that the original output for each one of them.