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Consider the following conditions a, b, and c and answer the questions that follow:(a) There are two countries ‘A’ and ‘B’. ‘A’ produces 500 tonnes of wheat by employing 200 labourers. ‘B’ produces 1,000 tonnes of wheat by employing 300 labourers.(b) Country ‘C’ produces 300 kg of tea and ‘D’ produces 500 kg of coffee. ‘C’ does not produce coffee and ‘D’ does not produce tea.(c) Country ‘E’ has expertise in water engineering and agriculture. Country ‘F’ has expertise in metro-making.If trade occurs between A and B in condition (a), what does it tell you about the conditions of countries in term of their economy? |
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Answer» Firstly, both countries are producing wheat and therefore, if their production of wheat is sufficient for their population, trade will not take place. Secondly, per capita production of wheat in country A is less than country B. As a result, the cost of production of wheat in country A is more than B country. Under the above conditions if country B is ready to export wheat to country A, country A will get wheat from B at the lower cost than the production cost in their country and trade in wheat will take place and both countries will be economically benefited and can improve their economy. |
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