Question

Suppose that a worker in Caninia can produce either 2 blankets or 8 meals per day, and a worker in Felinia can produce either 5 blankets or 1 meal per day. Each nation has 10 workers. For many years, the two countries traded, each completely specializing according to their respective comparative advantages. Now war has broken out between them and all trade has stopped. Without trade, Caninia produces and consumes 10 blankets and 40 meals per day and Felinia produces and consumes 25 blankets and 5 meals per day. The war has caused the combined daily output of the two countries to decline by ____.

Answer 1

50 units

Step-by-step explanation:

Caninia can produce either 2 blankets or 8 meals per day:

Opportunity cost of producing 1 blanket = (8 ÷ 2)

= 4 meals

Opportunity cost of producing 1 meal = (2 ÷ 8)

= 0.25 blankets

Felinia can produce either 5 blankets or 1 meal per day:

Opportunity cost of producing 1 blanket = (1 ÷ 5)

= 0.2 meals

Opportunity cost of producing 1 meal = (5 ÷ 1)

= 5 blankets

Therefore,

Caninia has a comparative advantage in producing meals because the opportunity cost of producing meals is lower than the Felinia.

Total meals produced with trade = 8 × 10

= 80

Felinia has a comparative advantage in producing blankets because the opportunity cost of producing blankets is lower than the Caninia.

Total blankets produced with trade = 5 × 10

= 50

Without trade,

Total blankets produced = 10 + 25

= 35

Decrease in blanket output = 50 - 35

= 15

Total meals produced = 40 + 5

= 45

Decrease in meals output = 80 - 45

= 35

Hence, the war caused the combined daily output of the two countries to decline by (15 + 35) = 50.