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ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Based on information below (2 countries x 2 products), if US has comparative advantage in producing Rice, what can you say about X? (note: figures represent production or output.)

Please assume that X is a positive number.

Rice Car

US 7 6

Korea 9 X

X < 4

X > 54/7

X < 63/7

X < 7

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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