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International Trade and Comparative Advantage: Should Poland and Greece Trade in Tools and Chairs?
Question 2: (2-minute answer; 6 marks; maximum number of words: 150) Study the following table of output per worker per day for Poland and Greece in tools and chairs. Poland Greece Tools 310 280 Chairs 250 330 Should these countries trade? If yes, what should they specialise in? Use the concepts of opportunity cost and comparative advantage to back up your answer.

Yes, Poland and Greece should trade based on the principles of opportunity cost and comparative advantage. Opportunity cost refers to the cost of producing one good in terms of the forgone production of another good.

In this case, Poland has an opportunity cost of 1 unit of chairs when it could produce 310 units of tools, while Greece has an opportunity cost of 1 unit of tools when it could produce 280 units of chairs. Greece has a lower opportunity cost in this case, as they must forgo fewer chairs (280 instead of 310) to produce 1 unit of tools.

Comparative advantage refers to the country that can produce a good at the lowest relative cost. Poland has a comparative advantage in producing tools since it can produce more tools per worker per day compared to Greece. On the other hand, Greece has a comparative advantage in producing chairs, as it can produce more chairs per worker per day than Poland.

Therefore, Poland should specialize in producing tools, leveraging its comparative advantage in this area, and Greece should specialize in producing chairs, where it has a relative efficiency. By specializing in their respective comparative advantages, both countries can increase overall production and benefit from international trade.