Answered: Suppose that each country currently has…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Suppose that each country currently has 140 workers and each decides to transfer some amount of labor toward its area of comparative advantage. The United States transfers 15 workers away from socks toward producing cell phones. Thailand transfers 28 workers away from cell phones toward producing socks.

What will be the new total output of cell phones for both countries combined?

Country	# of workers needed to produce 1,000 units- Socks	# of workers needed to produce 1,000 units- Cell Phones
United States	5 workers	1 worker
Thailand	7 workers	4 workers

Total Production Before Trade

Country	Current Sock Production	Current Cell Phone Production
United States	14,000	70,000
Thailand	10,000	17,500
Total	24,000	87,500

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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