Imagine an economy with two countries, US and China, which can produce 2 goods, cars and trucks. Use the table below describing the hours needed to produce each good for each country to answer the following questions.                     Cars                    Trucks   US             25                         25   China        20                          10   Which country has the absolute advantage in producing cars? Who has the absolute advantage in producing trucks?   What is the opportunity cost of producing a truck (in terms of cars) for the US? What is the opportunity cost of producing a truck for China? i. Who has the comparative advantage in car production?     What is the opportunity cost of producing a car (in terms of trucks) for the US? What is the opportunity cost of producing a car for China? i. Who has the comparative advantage in truck production?     Would these countries benefit from specialization and trade? i. How many trucks does the US/China have to give up to for one car if there is no trade between the two? Express it in terms of x trucks/car. ii. What is an exchange rate that would make both countries better off?

Principles of Economics 2e
2nd Edition
ISBN:9781947172364
Author:Steven A. Greenlaw; David Shapiro
Publisher:Steven A. Greenlaw; David Shapiro
Chapter33: International Trade
Section: Chapter Questions
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Imagine an economy with two countries, US and China, which can produce 2 goods, cars and
trucks. Use the table below describing the hours needed to produce each good for each country
to answer the following questions.
 
                  Cars                    Trucks
 
US             25                         25
 
China        20                          10
 
Which country has the absolute advantage in producing cars? Who has the absolute
advantage in producing trucks?
 
What is the opportunity cost of producing a truck (in terms of cars) for the US? What is
the opportunity cost of producing a truck for China?
i. Who has the comparative advantage in car production?
 
 
What is the opportunity cost of producing a car (in terms of trucks) for the US? What is
the opportunity cost of producing a car for China?
i. Who has the comparative advantage in truck production?
 
 
Would these countries benefit from specialization and trade?
i. How many trucks does the US/China have to give up to for one car if there is no
trade between the two? Express it in terms of
x trucks/car.
ii. What is an exchange rate that would make both countries better off?
 
 
 
 
 
 
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