a)
The question requires us to determine the country which has an
a)
Explanation of Solution
The following table represents the number of workers needs to produce one unit of washing machine and automobile in one day:
Automobile | Washing machine | |
Italy | 8 | 3 |
United States | 6 | 2 |
From the given table,
Fewer workers are required to produce an automobile in the country U than in country I. So, in a given time period the production of automobiles will be higher in the U than in I. Therefore, country U has an absolute advantage in producing automobiles.
Similarly, fewer workers are required to produce a washing machine in country I than in the U. Therefore, country I has an absolute advantage in producing washing machines.
b)
The question requires us to determine the country which has a
b)
Explanation of Solution
The country with a lower opportunity cost of producing a product will have a comparative advantage in producing that product. A lower opportunity cost indicates a less quantity of foregone goods a country has to sacrifice to produce a particular product.
The
The opportunity costs of producing a unit of an automobile in the U
The opportunity costs of producing a unit of washing machine in country I
The opportunity costs of producing a unit of washing machine in the US
Since the opportunity cost of automobile production in the US is lower. Thus, country U has a comparative advantage in automobile production while the opportunity cost of washing machine production is lower in Italy than in the US is lower. Thus, country I has a comparative advantage in washing machine production.
c)
The question requires us to determine the specialization which results in the largest
c)
Explanation of Solution
The country with a lower opportunity cost of producing a product will have a comparative advantage in producing that product. A nation has a comparative advantage will have specialization in the production of that particular good.
Since the opportunity cost of automobile production in the country U is lower. Thus, the country U has a comparative advantage in automobile production while the opportunity cost of washing machine production is lower in Italy than in the US is lower. Thus, country I has a comparative advantage in washing machine production.
So, Italy gets specialization in washing machine production while the US gets specialization in automobile production.
Want to see more full solutions like this?
Chapter 4 Solutions
Krugman's Economics For The Ap® Course
- Principles of Economics (12th Edition)EconomicsISBN:9780134078779Author:Karl E. Case, Ray C. Fair, Sharon E. OsterPublisher:PEARSONEngineering Economy (17th Edition)EconomicsISBN:9780134870069Author:William G. Sullivan, Elin M. Wicks, C. Patrick KoellingPublisher:PEARSON
- Principles of Economics (MindTap Course List)EconomicsISBN:9781305585126Author:N. Gregory MankiwPublisher:Cengage LearningManagerial Economics: A Problem Solving ApproachEconomicsISBN:9781337106665Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike ShorPublisher:Cengage LearningManagerial Economics & Business Strategy (Mcgraw-...EconomicsISBN:9781259290619Author:Michael Baye, Jeff PrincePublisher:McGraw-Hill Education