Question 1
Country X and Country Y are capable of producing both apples and bananas. Assume a two-country, two-product model.
Country Y has absolute advantage in the production of both apples and bananas, and comparative advantage in the production of bananas.
Outline one reason why it might not be in a country's best interests to specialize according to the principle of comparative advantage.
The market for oranges in Country Z is illustrated on Figure 5.
Figure 5
The domestic demand and supply for oranges are given by the functions
where P is the price of oranges in dollars per kilogram ( per kg ), Q d is the quantity of oranges demanded (thousands of kg per month) and Qs is the quantity of oranges supplied (thousands of kg per month). The world price of oranges is per kg.
Due to increased awareness of the possible health benefits of vitamin C , the demand for oranges in Country Z increases by 60000 per month at each price.