Answer
a) England has the absolute advantage for making scones, and Scotland has the absolute advantage for making sweaters. England has the comparative advantage for making scones, and Scotland has the comparative advantage for making sweaters.
b) England would trade scones for Scotland's sweaters.
c) Both countries would still benefit from trade.
Work Step by Step
a)
England can make a sweater in the same time it takes to make 50 scones. The opportunity cost of making a scone is 1/50 of a sweater.
Scotland can make a sweater in the same time it takes to make 20 scones. The opportunity cost of making a scone is 1/20 of a sweater.
b)
Since England has the comparative advantage for making scones, England wouldn't trade for scones. England would want to trade for sweaters from Scotland.
c)
Scotland now has an opportunity cost for a sweater of 40 scones, and the opportunity cost of a scone would be 1/40 of a sweater. Scotland would still have the comparative advantage for sweaters, so trade with England (for England's scones) would still make both countries better off.
