Answered: Suppose there are 1 million workers in…

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 there are 1 million workers in Country X. Each worker can either produce 2 units of game console or 30 units of wheat in a year.

b.) Suppose, for Country Y, the opportunity cost of producing a unit of game console is 25 units of wheat.

i. Which country, X or Y, has a comparative advantage in producing game console? Explain.
ii. Suppose in the international trade market, one unit of game console can be exchanged for 22 units of wheat. Explain whether Country X should buy or sell game console in the international market. What will be her gain from trade per unit of game console bought or sold? What will be the corresponding gain from trade for Country Y? (4 marks)

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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