Midterm1_v1_Fall2013_Solution

Rice but not bananas

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Unformatted text preview: ere will be no more gains from trade available. 2. [12%] Refer to the table below for this problem. Assume that Malaysia and India can switch between producing rice and bananas at a constant rate. Make sure to show your work. Malaysia India Labor Hours Needed to Make 1 Unit of Rice Bananas 2 5 4 2 Number of Units Produced in 40 Hours Rice Bananas 20 8 10 20 a) What is Malaysia’s opportunity cost of producing bananas? 2.5 units of rice. This is higher than India’s opportunity cost of producing bananas. b) What is India’s opportunity cost of producing rice? 2 units of bananas. This is higher than Malaysia’s opportunity cost of producing rice. c) For which good(s) does Malaysia have a comparative advantage? Rice but not bananas. d) Give an example of a price (in terms of units of bananas and rice), if any, at which India and Malaysia can both gain from trade. 3/5 units of bananas per unit of rice. Note t...
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