Answer
a) England has the absolute advantage in producing scones. Scotland has the absolute advantage in producing sweaters.
b) Scotland should trade sweaters to England.
c) Yes
Work Step by Step
a) The producer that requires a smaller quantity of inputs to
produce a good is said to have an absolute advantage in producing that good. In one hour, England can produce 50 scones while Scotland can only produce 40. Similarly with sweaters, in one hour, Scotland can produce 2 while England can only produce one.
b) Slope of England's PPF = 1\div50. Slope of Scotland's PPF = 1\div20. This means that for England, the opportunity cost of 1 scone = 1/50 sweater and for Scotland, 1 scone = 1/20 sweater. It is clear that Scotland has a higher opportunity cost to produce scones, so it should trade sweaters to England in returns for scones.
c) If a Scottish worker could only produce 1 sweater per hour, the opportunity cost for 1 scone would be 1/40 sweater. Since Scotland's opportunity cost to produce scones is still higher than that of England, it will still trade sweaters with England in returns for scones. England will still benefit as Scotland's opportunity cost to produce sweaters remains lower than its own.
