Imagine an economy with two countries, US and China, which can produce 2 goods, cars and trucks. Use the table below describing the hours needed to produce each good for each country to answer the following questions. Cars Trucks US 25 25 China 20 10 Which country has the absolute advantage in producing cars? Who has the absolute advantage in producing trucks? What is the opportunity cost of producing a truck (in terms of cars) for the US? What is the opportunity cost of producing a truck for China? i. Who has the comparative advantage in car production? What is the opportunity cost of producing a car (in terms of trucks) for the US? What is the opportunity cost of producing a car for China? i. Who has the comparative advantage in truck production? Would these countries benefit from specialization and trade? i. How many trucks does the US/China have to give up to for one car if there is no trade between the two? Express it in terms of x trucks/car. ii. What is an exchange rate that would make both countries better off?
Imagine an economy with two countries, US and China, which can produce 2 goods, cars and trucks. Use the table below describing the hours needed to produce each good for each country to answer the following questions. Cars Trucks US 25 25 China 20 10 Which country has the absolute advantage in producing cars? Who has the absolute advantage in producing trucks? What is the opportunity cost of producing a truck (in terms of cars) for the US? What is the opportunity cost of producing a truck for China? i. Who has the comparative advantage in car production? What is the opportunity cost of producing a car (in terms of trucks) for the US? What is the opportunity cost of producing a car for China? i. Who has the comparative advantage in truck production? Would these countries benefit from specialization and trade? i. How many trucks does the US/China have to give up to for one car if there is no trade between the two? Express it in terms of x trucks/car. ii. What is an exchange rate that would make both countries better off?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Imagine an economy with two countries, US and China, which can produce 2 goods, cars and
trucks. Use the table below describing the hours needed to produce each good for each country
to answer the following questions.
Cars Trucks
US 25 25
China 20 10
Which country has the absolute advantage in producing cars? Who has the absolute
advantage in producing trucks?
What is the opportunity cost of producing a truck (in terms of cars) for the US? What is
the opportunity cost of producing a truck for China?
i. Who has the comparative advantage in car production?
What is the opportunity cost of producing a car (in terms of trucks) for the US? What is
the opportunity cost of producing a car for China?
i. Who has the comparative advantage in truck production?
Would these countries benefit from specialization and trade?
i. How many trucks does the US/China have to give up to for one car if there is no
trade between the two? Express it in terms of
x trucks/car.
ii. What is an exchange rate that would make both countries better off?
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