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Unformatted text preview: tage in the production of both goods.
e. Neither country has a comparative advantage in the production of either good. Answer: For Econ, 1 cocoa costs 2 cars
so, 1/2 cocoa costs 1 car
For Nomics, 1 cocoa
so, 1/5 cocoa costs
= 5 cars
1 car Econ has a lower op cost for cocoa,
2 cars v. 5 cars.
So Econ will produce cocoa.
Nomics has a lower op cost for cars,
1/5 cocoa v. 1/2 cocoa.
So Nomics will produce cars.
So 3. The diagram shows the PPCs for two countries:
Artland and Rayland. Using equal amounts of resources,
Artland can produce 600 hats or 300 bicycles, whereas
Rayland can produce 1,200 hats or 300 bicycles.
(a)Calculate the opportunity cost of a bicycle in Artland.
Answer to 3. (a):
The Domestic Comparative (opportunity cost) of a bicycle
in Artland is 2 units of hats. [1 bicycle = 2 hats or 600/300=2] (b) If the two countries specialize and trade, which country
will import bicycles? Explain.
Answer to 3. (b):
Rayland will import bicycles. Domestically, they have to give
up 4 hats to get a bicycle but with trade they ha...
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This note was uploaded on 07/20/2012 for the course ECON 2106 at GCSU.