Country ACountry B200corn600150375 1005050 75100150200cars255075100carsa) What is the opportunity cost of making cars in each country? Make clear how you find thisand what it means.b) If the countries were to specialize and trade, which country should specialize in making cars?Why?c) If the countries specialize completely according to comparative advantage (i.e.eachproduces only what they have the comparative advantage in) what would be the totalproduction of cars and corn? How does this compare to the total production at their originalpre-trade production points?d) Suppose the country that specializes in making only cars trades with the country that makesno cars. The car-maker sends the other country as many cars as they were consuming beforetrade. How much corn could the corn-making country trade for these cars and have bothcountries be better off than they were before trade?

Answered: Country A Country B 200 Corn 600 150…

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

Country A
Country B
200
corn
600
150
375 100
50
50 75100
150
200
cars
25
50
75
100
cars
a) What is the opportunity cost of making cars in each country? Make clear how you find this
and what it means.
b) If the countries were to specialize and trade, which country should specialize in making cars?
Why?
c) If the countries specialize completely according to comparative advantage (i.e.each
produces only what they have the comparative advantage in) what would be the total
production of cars and corn? How does this compare to the total production at their original
pre-trade production points?
d) Suppose the country that specializes in making only cars trades with the country that makes
no cars. The car-maker sends the other country as many cars as they were consuming before
trade. How much corn could the corn-making country trade for these cars and have both
countries be better off than they were before trade?

Expert Solution

Step 1

The opportunity cost is the difference between the time spent studying and the money spent on something else. A farmer decides to grow wheat; the opportunity cost is planting a different crop or using the resources in a different way (land and farm equipment). Instead of driving to work, a commuter rides the train.

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