Concept explainers
The representation of the given figure about absolute and
Explanation of Solution
Budget constraint represents the choice trade-off that an economic agent has to make. It takes the
Given the quantities of both the goods produced in T and K, there is a need to calculate the opportunity cost of both the goods in terms of another good.
In Taiwan, the opportunity cost of producing good A in terms of good B will be calculated as done below:
Similarly, the opportunity cost of producing good B in terms of good A will be calculated as done below:
In Korea, the opportunity cost of producing good A in terms of good B will be calculated as done below:
Similarly, the opportunity cost of producing good B in terms of good A will be calculated as done below:
After all the calculations, it has been observed that in Taiwan, the opportunity cost of producing good A is less than the opportunity cost of producing good A in Korea. So, Taiwan has the comparative advantage in good A and Korea has the comparative advantage in good B.
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- Exploring EconomicsEconomicsISBN:9781544336329Author:Robert L. SextonPublisher:SAGE Publications, Inc