Question

Below is the productivity per worker (kilos per day) in the rice and beer industries of Catalonia and Granada. The working population in each country is 12 million people. Rice Beer Catalonia 4 Or 3 Granada 3 Or a) Refer to the data above to answer this question. In which product does Catalonia have a comparative advantage? (2 marks) 2 Catalonia: Granada: b) Refer to the data above to answer this question. Suppose that each country allocates 5 million of its population to the rice industry, the rest being employed in the beer industry. What is their (joint) total production? (2 marks) Rice = Beer = c) If the two countries specialize and employ all of their population to produce their specialty, what will be the total gain in production of rice and beer? (2 marks)

Answer 1

Main Answer:

Catalonia excels in beer with higher productivity, showcasing a comparative advantage over Granada in beer production. a) Catalonia has a comparative advantage in beer.

Therefore, the correct answer is a).

Step-by-step explanation:

Catalonia's comparative advantage in beer is evident by the higher productivity per worker in the beer industry compared to Granada. With a productivity rate of 4 kilos per day in rice and 3 kilos per day in beer, Catalonia outperforms Granada in the beer sector. Comparative advantage, in this context, refers to the ability to produce a good or service at a lower opportunity cost than another country. In this case, Catalonia sacrifices less beer production to produce one additional kilo of rice compared to Granada.

Suppose each country allocates 5 million of its population to the rice industry, the rest in the beer industry. The joint total production, in this scenario, would be 15 million kilos of rice and 18 million kilos of beer. This allocation optimizes the comparative advantage of each country, maximizing overall production.

If both countries specialize and allocate their entire population to their respective specialties, the total gain in production would be substantial. Catalonia would produce 48 million kilos of beer, and Granada would produce 36 million kilos of rice. This specialization takes advantage of their differing comparative advantages, leading to a more efficient allocation of resources and increased total output.

In conclusion, the comparative advantage analysis and optimal resource allocation highlight the importance of specialization in enhancing overall productivity and efficiency in the rice and beer industries of Catalonia and Granada.

Therefore, the correct answer is a).

Answer 2

a) Catalonia has a comparative advantage in producing beer.

b) If each country allocates 5 million of its population to the rice industry, the joint total production would be: Rice = 40 million kilos/day, Beer = 35 million kilos/day.

c) If both countries specialize in their comparative advantage and allocate their entire population accordingly, the total gain in production of rice and beer would be: Rice = 60 million kilos/day, Beer = 45 million kilos/day.

Step-by-step explanation:

a) Comparative advantage is determined by the opportunity cost of production. To find it, divide the units of one product by the units of the other for each country: Catalonia's opportunity cost of producing rice is 4/3, while Granada's is 3/3 = 1, and for beer, Catalonia's is 3/4 and Granada's is 1/3. Catalonia has a lower opportunity cost in beer production, indicating its comparative advantage in beer.

b) Allocating 5 million to the rice industry in each country results in Catalonia producing 5 million workers × 4 kilos/day = 20 million kilos/day of rice, and Granada producing 5 million workers × 3 kilos/day = 15 million kilos/day of rice. For beer, Catalonia's 7 million workers × 3 kilos/day = 21 million kilos/day, and Granada's 7 million workers × 1 kilo/day = 7 million kilos/day. The joint total production would then be Rice = 20 + 15 = 35 million kilos/day, Beer = 21 + 7 = 28 million kilos/day.

c) Specializing in their comparative advantage, if Catalonia employs all 12 million workers in beer production (12 million × 3 kilos/day = 36 million kilos/day), and Granada allocates all 12 million to rice (12 million × 3 kilos/day = 36 million kilos/day), the total production becomes Rice = 20 + 16 = 60 million kilos/day, Beer = 36 + 9 = 45 million kilos/day, resulting in gains in both rice and beer production.