Answered: Consider a hypothetical world with two…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Consider a hypothetical world with two countries: Country A and Country B. Both countries produce computers and televisions. Assume that consumers in both countries desire both these goods and that consumers and producers cannot differentiate between computers and televisions from either country. The production in each country before trade is shown in the table below.
Production before trade:

Country	Computer Production	Television Production
Country A	3,000	1,800
Country B	1,200	1,000
Total	4,200	2,800

Suppose that each country transfers some amount of resources toward its area of comparative advantage. The production in each country after the countries started trade is as follows:

Production after Trade

Country	Computer Production	Television Production
Country A	4,000	1,200
Country B	600	2,000
Total	4,600	3,200

Determine the range for the quantity of computers exchanged for televisions that will benefit both countries. Note that a country will benefit from trade if it can consume more than in a world without trade. Enter your answers in the boxes below.

Greater Than

Lower Than

Definition Video Definition Ability of a country to produce goods and services at a lower opportunity cost compared to other countries. Here, opportunity cost refers to the forgone units of one good in order to produce one more unit of another good. For example, the opportunity cost of producing good X in country A is 2Y and in country B is 1.25Y. Country B has a lower opportunity cost of producing good X than country A. Therefore, country B has a comparative advantage in the production of good X. Video

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