Question

Consider the following conditions a, b and c and answer the questions that follow:

a) There are two countries ‘A’ and ‘B’. ‘A’ produces 500 tonnes of wheat by employing 200 labourers. ‘B’ produces 1,000 tonnes of wheat by employing 300 labourers.

b) Country ‘C’ produces 300 kg of tea and ‘D’ produces 500 kg of coffee. ‘C’ does not produce coffee and ‘D’ does not produce tea.

c) Country ‘E’ has expertise in water engineering and agriculture. Country ‘F’ has expertise in metro-making.

1. Will trade take place between A and B in condition (a)?
2. Will trade take place between C and D in condition (b)?
3. If trade occurs between A and B in condition (a), what does it tell you about the conditions of the countries in terms of their economy?
4. If trade occurs between C and D in (b), what does it tell you about the climate of the countries?
5. Considering that trade occurs between two countries in condition (c), what does it tell you about the human resources of the countries?
6. Make a list of factors which affect the trade between any two countries.

Answer 1

1. Yes. Trade can take place between A and B because B produces wheat more efficiently than A and has a higher output per labourer.
2. Yes. Trade can take place because C produces tea but not coffee, while D produces coffee. Each country can exchange the product it produces.
3. It shows that the countries have different levels of productivity and efficiency. One country can produce certain goods at a lower cost or with fewer resources than the other.
4. It indicates that the countries have different climatic conditions, which favour the production of different crops such as tea and coffee.
5. It shows that both countries have different skills and specialised human resources. Country E has expertise in water engineering and agriculture, while Country F has expertise in metro construction.
6. Factors affecting trade between two countries:
   • Availability of natural resources
   • Climate
   • Difference in production and productivity
   • Skilled human resources
   • Technology
   • Transport and communication facilities
   • Demand for goods and services
   • Cost of production
   • Government policies
   • Political relations between countries
   • Availability of capital
   • Distance between the countries