GROUP 1:

a. Vietnam has the absolute advantage in producing smartphones.

Thailand has the absolute advantage in producing laptops.
b. Vietnam: 4 laptops or 24 smartphones
● 1 laptop = 24/4 = 6 smartphones
● 1 smartphone = 4/24 = ⅙ laptop
Thailand: 6 laptops or 20 smartphones
● 1 laptop= 20/6 ≈ 3.33 smartphones
● 1 smartphone= 6/20=0.3 laptop
c. -Comparative advantage:
Vietnam has comparative advantage in smartphones (⅙ < 0.3))
Thailand has comparative advantage in laptops (3.33 < 6)
-Opportunities for trade:
Vietnam should specialize in smartphones.
Thailand should specialize in laptops.

1 laptop = 3.33 < x < 6

Group 3:
a. Which nation has the absolute advantage in each good?
Absolute advantage refers to the ability of a country to produce more of a good
with the same resources.

Vietnam: 4 laptops or 24 smartphones

Thailand: 6 laptops or 20 smartphones

Laptops: Thailand produces 6 ,VietNam Produces 4 (6>4), so Thailand has the

absolute advantage in laptops.

Smartphones: Vietnam produces 24,ThaiLand produces 20 (24>20) => Vietnam

has the absolute advantage in smartphones.

B. What is the opportunity cost for producing one of each product?

For Vietnam:

Producing 1 laptop costs 24/4 = 6 smartphones.

Producing 1 smartphone cost 4/24 = 1/6 laptops.

For Thailand:

Producing 1 laptop costs 20/6 = 10/3 smartphones.

Producing 1 smartphone cost 6/20 = 3/10 laptops.

c)Analyze comparative advantage and opportunities for trade.

Vietnam:

Opportunity cost of 1 laptop = 6 smartphones.

Opportunity cost of 1 smartphone = 1/6 laptop.

Thailand:

Opportunity cost of 1 laptop = 10/3 smartphones.

Opportunity cost of 1 smartphone = 3/10 laptop.

Vietnam has a comparative advantage in smartphones .

=> its opportunity cost for 1 smartphone ( 1/6 laptop) is lower than Thailand's (3/10
laptop).

Thailand has a comparative advantage in laptops

=> its opportunity cost for 1 laptop ( 10/3 smartphones) is lower than Vietnam's (6
smartphones).

Trade Opportunities

-Vietnam should specialize in producing smartphones.

-Thailand should specialize in producing laptops.

-By trading, both nations can enjoy more of both goods than they could produce
independently.
1 laptop = 3.33 < x < 6
 Group 2 QUESTION 2
a) To determine comparative advantage, we calculate the opportunity cost of producing
one unit of each good in terms of the other good.

For the UK:

- Opportunity cost of 1W (Wheat) = 2C/1W=2C (2 units of Clothes).

-Opportunity cost of 1C (Clothes) = 1W/2C=0.5W (0.5 units of Wheat).

For the U.S:

-Opportunity cost of 1W (Wheat) = 4C/6W=2/3C (0.67 units of Clothes).

-Opportunity cost of 1C (Clothes) = 6W/4C=1.5W (1.5 units of Wheat).

Comparative Advantage:

-The UK has a lower opportunity cost in producing Clothes (0.5W<1.5W).

-The U.S. has a lower opportunity cost in producing Wheat (0.67C<2C).

Answer:

-UK has the comparative advantage in Clothes.

-U.S. has the comparative advantage in Wheat.

b) Exchange rate interpretation:

This rate implies:
1W = 3C ( 1 unit of Wheat is traded for 3 units of Clothes )
Comparative cost analysis:
● For the UK, the cost of 1W is 2C. At the exchange rate 1W= 3C, the UK can gain
from trade by exporting Clothes and importing Wheat.
● For the US, the cost of 1W is 0.67C. At the exchange rate 1W = 3C, the US loses
because importing Clothes costs more than producing them domestically.
➔ Trade will not happen because the exchange rate 6W = 18C is unfavorable
for the US.

c) For trade to be beneficial to both, the exchange rate must fall in between their respective
opportunity costs
- For wheat:
2C(UK)<1W<0,67C(U.S)
Rearrange: 2C<=1W<=3C
 - A fair exchange rate is any value between 2C and 3C per unit of Wheat.
⇒ The trade benefits are equal when the exchange rate is between 1W=2C and
1W=3C.

Best Equal Exchange Rate for 1W= (UK’s cost of 1W+US’s cost of 1W)/2
=(2C+0,67C)/2 ⇒ 1.35
The equal exchange rate is 1W = 1.35C.

Question 2 – GROUP 4

a.

For UK:

● To produce 1W costs 2C/1W = 2C per W

● To produce 1C costs 1W/2C = 0.5W per C

For US:

● To produce 1W costs 4C/6W = ⅔ C per W

● To produce 1C costs 6W/4C = 1.5W per C

● US has comparative advantage in Wheat ( ⅔ C < 2C)

● UK has comparative advantage in Clothe ( 0.5W < 1.5W)

B. Given exchange rate 6W = 18C, or 1W = 3C

This trade will NOT happen because:

● For UK, producing 1W costs them 2C, but trading would cost 3C
● For the US, producing 1C costs them 1.5W, but trading would get them only 1/3W
Neither country benefits at this exchange rate, so no trade will occur.

C. For trade benefits to be equal, the exchange rate must be between both countries'
opportunity costs.

● UK's opportunity cost ratio: 1W = 2C US's opportunity cost ratio: 1W = 2/3C

● The range is between ⅔ C and 2C.(Wheat)
The exchange rate must lie between ⅔ C per W and 2C per W to make trade beneficial for both
countries.

● The UK's opportunity cost for Clothes is 0.5W, and the US's is 1.5W.
● The range is between 0.5W and 1.5W (Clothes)

There's no single exchange rate that perfectly balances benefits, but any rate within the range
of approximately ⅔ C < 1W < 2C would allow for mutually beneficial trade.

Question 1: (Group 1)
a. For France:
● Price of wine = 40/5 = 8 euros per unit
● Price of cheese = 40/20 = 2 euros per unit

For the US:

● Price of wine = 100/10 =10 dollars per unit = 10 euros per unit
● Price of cheese = 100/25 = 4 dollars per unit = 4 euros per unit

Price of Wine and Cheese in France and the U.S. Measured in Euros

France US

Price of Wine (in euros) 8 10

Price of Cheese (in euros) 2 4

b. Yes, France has lower productivity, it also has lower wages (40 euros/day vs
100 dollars/day) → lower cost of production
c. The disequilibrium in this scenario arises because of differences in productivity and
wages between France and the U.S., while the exchange rate is fixed at 1 euro = 1
dollar.
Price of cheese:
● France: 2 euros/unit
● U.S.: 4 euros/unit
 ● France's cheese is significantly cheaper, creating a higher demand for French cheese
internationally.
Price of wine:
● France: 8 euros/unit
● U.S.: 10 euros/unit
● France's wine is cheaper than U.S. wine but less competitive in this market since the
price difference is smaller.
In France:
● Wages increase: Higher demand for French cheese leads to increased production and
competition for labor in the cheese sector. This drives up wages in France, making
French production more expensive.
● Prices increase: As wages rise, the price of French cheese also increases, reducing its
competitive edge internationally.
In the U.S.:
● Wages increase: Higher demand for U.S. wine boosts production, increasing labor
demand in the wine industry. U.S. wages rise, particularly in the wine sector, increasing
production costs.
● Prices increase: Higher wages push up the price of U.S. wine, reducing its competitive
edge internationally.

Question 3 - Group 3:

The cost of producing for phones

VN: 12/ 3 =4 per phone

CN: 24/ 4 = 6 per phone

Computers:

• In VN: £12 ÷ 4 = £3 per computer

• In CN: $24 ÷ 7 ≈ $3.43 per computer

Phones:

For VN to export phones to CN, the exchange rate:

• £4 (VN) < $6 (CN), so £1 < $1.5.

For CN to export phones to VN, the exchange rate:

• $6 (CN) < £4 (VN), so £1 > $1.5.

Thus, for phones: £1 = $1.5.

 Computers:

For VN to export computers to CN, the exchange rate:

• £3 (VN) < $3.43 (CN), so £1 < $1.14.

For CN to export computers to VN, the exchange rate:

• $3.43 (CN) < £3 (VN), so £1 > $1.14.

Thus, for computers: £1 = $1.14.

The exchange rate must satisfy both products. Combining the ranges:

• Phones: £1 = $1.5

• Computers £1 = $1.14

Question 4 - Group 8:

Ricardo's concept of comparative advantage highlights that differences in labor

productivity between countries are the basis for trade. Here are some key reasons why
labor productivity might differ across countries:

- Technology: Access to advanced technology and innovation can significantly

impact productivity. Countries with more advanced technology and automation
can produce more goods and services with the same amount of labor.
- Human Capital: The skills, education, and health of the workforce play a crucial
role. A well-educated and healthy workforce is generally more productive.
Differences in education systems and access to healthcare can lead to variations in
human capital across countries.
- Natural Resources: The availability and quality of natural resources can affect
productivity. Countries with abundant fertile land, mineral deposits, or access to
energy sources may have an advantage in producing certain goods.
- Infrastructure : Efficient transportation, communication, and energy infrastructure
facilitates production and trade. Countries with well-developed infrastructure can
move goods and services more efficiently, lowering production costs and
increasing productivity.
 - Institutions: A stable political and legal environment, secure property rights, and
efficient regulations create a favorable environment for businesses to invest and
grow, which can boost productivity.
- Specialization and Economies of Scale: Countries may specialize in producing
certain goods or services, allowing them to gain expertise and economies of scale,
leading to higher productivity.

It’s important to note that these factors are often interconnected.