a)
The question requires us to determine the
a)
Explanation of Solution
The following graph represents the production of corn and computers in country A and country B:
Country | Corn (bushels) | Computers |
Country A | 800 | 200 |
Country B | 400 | 500 |
From the given table:
The opportunity cost of a bushel of corn in country A
The opportunity cost of a bushel of corn in country B
b)
The question requires us to determine the country which has an
b)
Explanation of Solution
The country with high production of a product in absolute terms will have an absolute advantage in producing that product.
The number of computers (500 units) country B is producing is more than the number of computers (200 units) country A is producing in absolute terms.
So, country B has an absolute advantage in producing computers.
c)
The question requires us to determine the country which has a
c)
Explanation of Solution
The country with a lower opportunity cost of producing a product will have a comparative advantage in producing that product. A lower opportunity cost indicates a less quantity of foregone goods a country has to sacrifice to produce a particular product.
A nation having a comparative advantage explains its ability to produce more specific goods and services by using the given resources.
The opportunity cost of corn production is lower in country A. Thus, country A has a comparative advantage in corn production.
d)
The question requires us to determine the goods imported by country B when each country specializes.
d)
Explanation of Solution
The country with a lower opportunity cost of producing a product will have a comparative advantage in producing that product. A nation has a comparative advantage will have specialization in the production of that particular good.
The opportunity cost of a computer in country A
The opportunity cost of a computer in country B
The opportunity cost of computer production is lower in country B. Thus, country B has a comparative advantage in computer production.
So, country A gets specialization in corn production while country B gets specialization in computer production.
Therefore, country B will produce computers and import corn from country A.
e)
The question requires us to determine the minimum price country A will take to export corn to country B.
e)
Explanation of Solution
A country sets the price of exporting goods more than the opportunity cost of producing that good. The opportunity cost of a bushel of corn in country A is 0.25 computers.
The minimum price country A will charge to export corn to country B is 0.25 computers.
Chapter 4 Solutions
Krugman's Economics For The Ap® Course
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