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International Trade: Comparative Advantage and Specialization in Tools & Chairs - Poland vs Greece Case Study
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, both Poland and Greece should consider trading with each other based on the principles of opportunity cost and comparative advantage. Opportunity cost refers to the cost of producing one good in terms of the foregone quantity of another good that could have been produced instead. Comparative advantage is about the relative opportunity costs between countries.

Poland has an opportunity cost of 1 tool for every 1.48 chairs (310 tools / 210 = 1.48 chairs), indicating that Poland has a lower opportunity cost of producing a chair compared to a tool. For Greece, the opportunity cost is 1 tool for every 0.85 chairs (280/330 = 0.85). This shows that Greece has a lower opportunity cost of producing a tool compared to a chair.

Given these opportunity costs, Greece has a comparative advantage in producing chairs, while Poland has a comparative advantage in producing tools. Specializing in what they're relatively better at would allow for mutually beneficial trade: Poland could focus on producing and exporting tools, while Greece could focus on chairs. By specializing according to their comparative advantages and engaging in trade, both countries can increase overall production and consumption, benefiting from the international division of labor.