Identify the commodity of comparative advantage

Assignment Help Macroeconomics

Reference no: EM13315073

The current global financial crisis has brought more harm than good to firms. Most firms have faced closures and others with losses. Domestically there have been closures of mines such as KCM luanshya and job cuts. Eventually, giant international firms have experienced losses despite recent global recovery from the crisis. Sony, one of Japanese electronic firm has reported a 390million losses, Shell and axxon Mobil one of world's largest oil producers has had profits plunge due to less demand of the product.

All these losses, job cuts came about due to a financial crisis that originated from the banking system in the U.S after banks loaned mortgages. Economists have so far called for banks to strengthen their loan policies to reduce chances of having another Crisis.

1. BANK Z (@ 10% RR)

ASSETS	LIABILITIES
RR: K200,000	Deposits : K2,000,000
ER : K1,800,000

You are given the above Balance sheet for Bank Z as at 28^th August, 2009. Answer the following questions;

i) Show how the Balance Sheet for Bank Z would look like after it loans out its Money to Mr. Chansa.

ii) Suppose Mr. Chansa Deposit his Money into Bank-B, How would the T- Balance sheet look like for Bank- B?

iii) If Mr. Mwanza approaches Bank- B for a loan, how much would he receive?

iv) After receiving a loan, Mr. Mwanza deposits his money into Bank- C. Show how its Balance Sheet would look like after receiving deposits.

2. You are given a classical (labour theory of value) world with two countries, Zambia and Tanzania involved in the production of maize and cloth.

Oil output

(Barrels/labour-hour)

Cloth output

(Yards/labour-hour)

Zambia

Tanzania

Answer the following questions:

State the commodity in which each country has absolute advantage.
Identify the commodity of comparative advantage for each country. Justify your answer
Indicate the gains to Zambia and Tanzania if the two countries exchanged 6 barrels of oil for 6 yards of cloth.
After the two countries specialize in their commodities of comparative advantage, show how the two countries total production will change.
What is the opportunity cost of producing cloth in Zambia?

Reference no: EM13315073

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