Question

A 4-column table has 2 rows. The first column is labeled country with entries Country A, Country B. The second column is labeled Cost (units) with entries 1, 1. The third column is labeled Petroleum (units) with entries 16, 8. The fourth column is labeled Seafood (units) with entries 8, 8.

Answer 1

Interpretation: each country has 1 unit of “cost” (e.g. 1 unit of labor) and can, with that unit, produce either the listed amount of Petroleum or Seafood (or any linear combination by splitting the cost). So:

Outputs per 1 cost unit
- Country A: 16 petroleum or 8 seafood.
- Country B: 8 petroleum or 8 seafood.

Opportunity costs
- Country A:
- 1 petroleum costs 8/16 = 0.5 seafood.
- 1 seafood costs 16/8 = 2 petroleum.
- Country B:
- 1 petroleum costs 8/8 = 1 seafood.
- 1 seafood costs 8/8 = 1 petroleum.

Conclusions
- Absolute advantage: A in petroleum (16 > 8); seafood is a tie (8 = 8).
- Comparative advantage: A has comparative advantage in petroleum (lower opp. cost: 0.5 < 1). B has comparative advantage in seafood (1 < 2).
- Specialization and trade: A should specialize in petroleum, B in seafood. Mutually beneficial terms of trade will lie between the two countries’ relative costs:
- Price of 1 petroleum must be between 0.5 and 1 seafood (equivalently, 1 seafood trades for between 1 and 2 petroleum).

If you want, I can:
- show a numerical example of trade under a particular terms-of-trade and how each country’s consumption changes, or
- draw the PPFs and the gains-from-trade graphically. Which would you prefer?