Question

Angola is capable of producing 700 pounds of salt or 50 pounds of pepper or some combination of the two. Benin is capable of producing 600 pounds of salt or 30 pounds of pepper or some combination of the two. Describe a trade that would benefit both countries. Which country produces each good? And how much of one should be traded for the other? Clearly show why this trade would benefit both countries. You only need to do this problem once. Even if you redo and resubmit the assignment, you don't need to repeat this question unless you want to change your answer.

Answer 1

To determine a trade that would benefit both Angola and Benin, we need to compare their production capabilities and identify a scenario where they can specialize in producing the good they have a comparative advantage in.

Step-by-step explanation:

To determine a trade that would benefit both Angola and Benin, we need to compare their production capabilities and identify a scenario where they can specialize in producing the good they have a comparative advantage in.

Angola can produce 700 pounds of salt or 50 pounds of pepper, while Benin can produce 600 pounds of salt or 30 pounds of pepper.

To find the comparative advantage, we need to compare the opportunity costs of producing salt and pepper in each country. The opportunity cost is the value of the next best alternative that must be forgone when making a choice.

For Angola:

Opportunity cost of producing 1 pound of salt = 50 pounds of pepper

Opportunity cost of producing 1 pound of pepper = 1/50 pound of salt

For Benin:

Opportunity cost of producing 1 pound of salt = 20 pounds of pepper

Opportunity cost of producing 1 pound of pepper = 1/20 pound of salt

Comparing the opportunity costs, we can see that Angola has a comparative advantage in producing salt, as the opportunity cost of producing salt (1/50 pound of pepper) is lower than that of Benin (1/20 pound of pepper).

Conversely, Benin has a comparative advantage in producing pepper, as the opportunity cost of producing pepper (1/20 pound of salt) is lower than that of Angola (1/50 pound of salt).

To benefit both countries through trade, Angola should specialize in producing salt, and Benin should specialize in producing pepper. They can then exchange their surplus goods with each other.

Let's assume they decide to trade 1 pound of salt for pepper. Angola can produce 700 pounds of salt, which means it can trade 700 pounds of salt for (700 * 1/50) = 14 pounds of pepper. Benin can produce 30 pounds of pepper, so it can trade 30 pounds of pepper for (30 * 50) = 1500 pounds of salt.

By engaging in this trade, Angola receives 14 pounds of pepper (which it couldn't produce efficiently), while Benin receives 1500 pounds of salt (which it couldn't produce efficiently). Both countries gain access to goods they have a comparative disadvantage in producing, leading to an increase in overall welfare and benefiting both nations.