So this question asks you to do a comparative advantage analysis of two countries (simple done this millions of times in millions of econ classes). Here is the data table given: Country A: 15Computers and 11Food Country B: 8Computers and 5Food Above they also give the following: “As a training session for new employees, Surratt and Castillo lecture on international trade and finance issues. To illustrate the concept of comparative advantage…A’s opportunity cost of producing computers is two bushels of food. B’s is five bushels of food.” eyeballing this statement and the chart given I am thinking oh good we are going to have a question asking whether their statement about the opportunity cost in A and B are correct (clearly they aren’t), so then I come to the question which asks: Which of the following best describes the gains from trade in Castillo’s example? Potential gains A) exist and Country A should increase food production B) exist and Country A should increase comp production C) Obvious distractor Being the good econ student that I am I do it the way economists have been doing this question since Ricardo: I divide the current food output by computer output for each country to get opportunity costs as follows, Country A .733units of food/1computer and Country B .625units of food/per computer. Clearly the OC of a computer is lower in country B so it should specialize in computers and higher in country A so it should specialize in food production. Schweser however decides to use the OC that Surrat and Castillo pulled out of their ASS, i.e. Country A 2unitsof food/1comp, Country B 5units of food/1comp, by which standard A should specialize in comps and B in food, which is wrong! In case you doubt my econ, feel free to google comparative advantage or just check out these solid references: http://en.wikipedia.org/wiki/Comparative_advantage http://tutor2u.net/economics/content/topics/trade/comparative_advantage.htm Seriously, if god-willing I pass, I will never use Schwerser again!
Come on folks, what say ye??
you are way ahead!
Seriously? I thought you would have been on the practice exams from like 2007 by now CP;)
Help please.
First off, CFAi will not be an As* to ask a stupid qn like this. What if they ask, we may not even know, instead we might be happier talk in AF later abt this as give away…
I guess the key words are “in Castillo’s example.” This question is more like a test on reading comprehension, rather than your knowledge in econ.