Comparative advantage and terms of trade

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Reference no: EM1313341

Suppose two nations are considering specializing in either calculators or personal computers. If solely producing calculators, country A can produce 300 and country B can produce 400. If solely producing personal computers, country A can produce 150 and country B can produce 100. Assume their labor forces are of equivalent size.

a) Which country has the comparative advantage in calculators? in computers?

b) It is predicted that current demand will yield an exchange of 3 calculators for every 1 computer. Will trade occur? If not, is it because both countries are against trade?

Reference no: EM1313341

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