Chapter 8, Problem 19P

To determine

Saudi Arabia		United States
Quantity of oil(Millions of barrels)	Quantity of Cars(Millions)	Quantity of oil(Millions of barrels)	Quantity of Cars(Millions)
0	4	0	10
200	3	100	7.5
400	2	200	5
600	1	300	2.5
800	0	400	0

1. The opportunity cost of producing a car in Saudi Arabia and in the United States and the opportunity cost of producing a barrel of oil in Saudi Arabia and in the United States.
2. The country having comparative advantage in producing oil and in producing cars.
3. Without trade can Saudi Arabia and United States produce more oil and more cars
4. If each country specializes in the good in which it has comparative advantage, determine the total quantity of oil produced and the total quantity of cars produced.
5. Is it possible for Saudi Arabia to consume 400 million of barrels of oil and 5 million cars and for the United States to consume 400 million of barrels of oil and 5 million cars?
6. The barrels of oil imported by United States if Saudi Arabia consumes 300 million barrels of oil and 4 million cars and the United States consumes 500 million barrels of oil and 6 million cars, The cars exported by the United States and the cost of a barrel of oil in the world market if a car costs $10,000 on the world market.

Concept Introduction:

Opportunity cost in Economics is implied when a good or service is produced by sacrificing another good or service. For ex, India can produce 1 kg of butter and 2 kgs of jaggery in an hour, and it forgoes to produce jaggery and chooses to produce butter, then the 1 kg of butter is the opportunity cost of producing 2 kgs of jaggery.

Comparative advantage is the ability to produce goods or services at a lower opportunity cost and not necessarily at a higher volume.