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NPP, Neo-Colonialism And Corrupt Leadership In High Places!!

Comment: THE MATHEMATICS OF TRADE

Author:
Osei Yaw, Kumasi
Date:
2007-03-04 21:45:02
Comment to:
TELL ME WHAT'S WRONG


Let's say Ghana and China both have ¢100,000. Using all this money Ghana can produce 200 sacks of rice, while China can produce only 100 sacks of rice. Or, using all this money, Ghana can produce 100 Kentes, while China can equally produce 100 Kentes. Now, because Ghana can produce more rice with ¢100,000, Ghana has ABSOLUTE ADVANTAGE in producing rice. Both countries are equally good at producing Kente with ¢100,000.

If you think like Nii Lantey, the author of the above article, it will seem to you that there is no point for Ghana to buy Kente from China and sell rice to China. After all, we discovered Kente in Ghana!!!

OK. If China produces 100 Kentes, China will not produce 100 Tonnes of rice.
But if Ghana produces 100 Kentes, Ghana will not produce 200 Tonnes of rice.

So you ask the Chinese: ‘Mr Chinese, how much of rice did you not produce when you produced 100 Kentes?’ And the Chinese will smile and say: ‘Well only 100 TONNES of rice, Mr Nii Lantey’. Again, you ask the Ghanaian: ‘Mr Ghanaian, how much of rice did you not produce when you produced 100 Kentes?’ And the Ghana man will sigh and say: ‘Hmm, 200 TONNES of rice, Mr Nii Lantey’. Asem aba. Ghana is losing more tonnes of rice than China in producing 100 Kentes.

But Nii Lantey will say: ‘Hey Ghana and China are not stupid to spend all their money on producing only Kente. They would DEVIDE their money and produce some Kente and some rice locally, so they wouldn’t have to trade with one another’. So Mr. Lantey suggests:

Ghana produces 100 tonnes of rice with ¢50,000 and use the remaining ¢50,000 to produce 50 Kentes.
And China should produce 50 tonnes of rice with ¢50,000 and use the remaining ¢50,000 to produce 50 Kentes.

So 100 tonnes of rice in Ghana + 50 tonnes of rice in China = 150 tonnes of rice available to both Ghanaians and Chinese. 50 Kentes in Ghana + 50 Kentes in China = 100 Kentes available to both Ghanaians and Chinese. Case closed. BUT really?

WHAT IF GHANA USES ALL THE ¢100,000 TO PRODUCE 200 TONNES OF RICE, AND CHINA ALSO USES ALL THE ¢100,000 TO PRODUCE 100 KENTES? CALL IT THE SPECIALISATION ADVICE.

Wow. Now, if they do this instead of what Nii Lantey says, this is what will happen:

There will be 200 tonnes of rice in Ghana + 0 tonnes of rice in China = 200 tonnes of rice available to both Ghanaians and Chinese. And 0 Kente in Ghana + 100 Kentes in China = 100 Kentes available to both Ghanaians and Chinese.

From Nii Lantey’s advice, there are 150 tonnes and 100 Kentes available to both countries. But from the specialisation advice, there are 200 tonnes of rice and 100 Kentes available. Which advice is better? Let’s check the trade involving Ghana importing Kente from China and exporting rice to China.

WE CAN DO A TRADE DEAL WITH THE CHINESE BY EXPORTING TO THEM 75 TONNES OF OUR RICE AND IMPORTING 50 KENTES FROM THEM.

If we do this, Ghana will have 200 – 75 = 125 TONNES of rice remaining, and 0 + 50 = 50 Kentes coming in.
China will have 0 + 75 = 75 TONNES of rice coming in, and 100 – 50 = 50 Kentes remaining.

AFTER THIS TRADE:
Ghana: 125 tonnes of rice and 50 Kentes, better than Nii Lantey’s advise of 100 tonnes of rice and 50 Kentes without importing from China.
China: 75 tonnes of rice and 50 Kentes, better than Nii Lantey’s advise of 50 tonnes of rice and 50 Kentes without trading with Ghana.
The end result of exports and imports is a win win win win win for allllllllllllllllllllllll.

This article is closed for comments.

03-04 15:29
 
 
 
 
 
 
 
THE MATHEMATICS OF TRADE
Osei Yaw, Kumasi
03-04 21:45