APPLYING ECONOMIC THINKING 1. Which country has an absolute advantage in steel production and which in copper production

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APPLYING ECONOMIC THINKING
1. Which country has an absolute advantage in steel production and which in copper production?
2. Calculate the opportunity cost of each product in each country. Explain your calculations.
3. Which country has a comparative advantage in the production of steel? Explain.
4. Which country has a comparative advantage in the production of copper? Explain.
5. Assume that each country has 4 000 labour hours to use each month and, without trade, each country would use half of its labour in the production of each good. Produce a set of tables similar to Figures 20.2 and 20.3 to prove that the two countries would benefit from specialization and trade. Support your conclusions by explaining your calculations.
6. Explain how the two countries can co-operate to correct a simultaneous shortage of steel and a surplus of copper. Produce a revised total production table to show this correction, similar to Figure 20.6.
7. Arcticona and Tropicona have an economic incentive to maintain peaceful relations. Explain why.
FIGURE 20.7 Production opportunities with 1000 hours of labour Country Steel Production (tonnes) Copper Production (tonnes) Arcticona 4 10 Tropicona 3 2
FIGURE 20.2 Each country uses its resources to produce two products Country Apples Peaches Canada 1000 600 United States 800 1400 Total 1800 2 000
FIGURE 20.3 Each country specializes in one product Country Apples Peaches Canada 2000 0 United States 0 2800 Total 2 000 2 800