Help! Economics AS.

Help with this question please. I know the answer from the mark scheme but I just need an explanation please.

A2 student... and I am puzzled... hmm

Is the answer C

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C?

Quiet clearly county 1 has a comparative advantage to produce good Y because they'll have to give up 0.5 x to produce 1 Y while country 2 will have to give up 0.75 x to produce 1 Y.

So lets say Country 2 tells Country 1 "I'll give you one X for 1 Y"
This is clearly desirable for Country 1 because in order to make 1 X they'll have to give up 2 Ys but now they can trade and give up 1 Y for X.
But think about country 2. Why would they give up one X for one Y when they can give up 0.75x for one Y and produce it them selves.
Therefore option a 1Y=1X is not desirable...


Carry the same philosophy for the rest of the options.


The answer is C.

Same... what exam board is this? I got an A at AS and I haven't got a clue!

This is CIE.

I just have no clue on Comparative and Absolute Advantage calculations.

The mark scheme says B though...

Oh yh of course. I read option B incorrectly.

Ok country 1 will have to give away
200Y to make 100 X
or in other words the'll have to give up 0.5x to make one Y

On the other hand country 2 will have to give away
400Y to make 300X
or in other words the'll have to give up 0.75x to make one Y

So since the opportunity cost for country 1 is lower to produce Y then country 2 will produce X.

Now lets take 1X=1.5Y

Country 1 will tell country 2 "I will give you 1.5 Y for 1X"
of course if they wanted to make this themselves they would have had to give up 2Y to make 1.5X (to make one Y they had to give up 0.5x so for 2 you give double it). So country 1 will be happy with this as they are gaining 0.5x by trading.


On the other hand country 2 will tell country 1 "I'll give you 1X for 1.5Y"
so 1Y cost them 0.75x so 1.5 so if they were to produce 1.5 Y themselves they would have to give up 1.125x (0.75*1.5) but now they can trade with country 2 and only give one X away (saving 0.125X).

So both countries benefit and hence 1X=1.5Y is the suitable rate of exchange.

STOP BEING SO GREAT AT ECONOMICS!! Thank you!! I really understand better. Can I ask for your help occasionally on questions I don't understand please? I am a private candidate at A2 level for my other subjects but new to Econs.