Discuss the Concepts of Constant Returns to Specialization and Diminishing

Question

Examlex · Accepted Answer

The Answer is The simple comparative advantage model developed above assumes constant returns to specialization. By constant returns to specialization
we mean the units of resources required to produce a good (cocoa or rice) are assumed to remain constant no matter where one is on a country's production possibility frontier (PPF). Thus, we assumed that it always took Ghana 10 units of resources to produce 1 ton of cocoa. However, it is more realistic to assume diminishing returns to specialization. Diminishing returns to specialization occur when more units of resources are required to produce each additional unit. While 10 units of resources may be sufficient to increase Ghana's output of cocoa from 12 tons to 13 tons, 11 units of resources may be needed to increase output from 13 to 14 tons, 12 units of resources to increase output from 14 tons to 15 tons, and so on. Diminishing returns imply a convex PPF for Ghana, rather than a straight line. It is more realistic to assume diminishing returns for two reasons. First, not all resources are of the same quality. A second reason for diminishing returns is that different goods use resources in different proportions.

Discuss the Concepts of Constant Returns to Specialization and Diminishing

Essay

Correct Answer:
Verified

Discuss the Concepts of Constant Returns to Specialization and Diminishing

Essay

Correct Answer:VerifiedShow Answer

Correct Answer:
Verified