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2INTERNATIONAL TRADEQuestion 1Lack of resources is a basic problem and faced by every economy. This kind ofproblem is faced by countries because wants are limitless, and thus to overcome this problemof scarcity, countries must take decisions regarding choices. Here comes the powerfuleconomic concept which is Opportunity cost. Opportunity cost thus defined as amount ofvalue of any commodity forgone in order to get value of another commodity (Jablonski,Schmit and Kay, 2016).Now considering two countries and two commodities model i.e., 2 *2 model theconcept of opportunity cost can be explained. Let the two countries be India and Thailand andthe two commodities are rice and cloth. Both countries are self sufficient and can produceboth commodities. But specializing in the commodity for which they have comparativeadvantage and then trading that commodity allows both economies to consume more. Belowtable 1 shows how much units of rice and cloth produced by each country.CountriesRice (kg)Cloth (meter)India 105Thailand52Table1: Production figureThe above table shows India produces 10kg of rice and 5 meter of cloth whileThailand produces 5kg of rice and 2 meter of cloth. Graphically it can be shown usingproduction possibility curve. PPC shows the efficiency in production and possible allocationpossibility for a given level of resources (Ruijs et al.2013). Here it mainly used to shows thetradeoff between producing two commodities.
3INTERNATIONAL TRADEDiagram 1 PPC of IndiaDiagram 2 PPC of ThailandThe above diagram 1 and diagram 2 shows PPC of Thailand and India, presently countriesare producing rice and cloth using a specific bundle.IndiaIndiaCloth1050RiceThailandClothRice210 0

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