In: Economics
QUESTION 53
Country 1 |
Country 2 |
||
Good A |
Good B |
Good A |
Good B |
100 |
0 |
75 |
0 |
80 |
10 |
60 |
30 |
60 |
20 |
45 |
60 |
40 |
30 |
30 |
90 |
20 |
40 |
15 |
120 |
0 |
50 |
0 |
150 |
20A; 15A |
||
1/20A; 1/15A |
||
10A; 15A |
||
1/2A; 1A |
||
2A; 1/2A |
Answer 53
The correct answer is (e) 2A; 1/2 A
COUNTRY 1
We can see from above table that Country A can produce either 100 units of A and 0 units of B or 80 units of A and 10 units of B. This means that in order to increase production of B from 0 to 10 units he has to decrease its production of A from 100 to 80 units i.e. in order to produce 10 units of B he has to sacrifice 100 - 80 = 20 units of A. Thus in order to produce 1 unit of B he has to sacrifice 20/10 = 2 units of A. Hence opportunity cost of producing 1 unit of B for country 1 is 2 units of A i.e. 2A (NOTE : According to above table Opportunity cost of producing B is constant)
COUNTRY 2
We can see from above table that Country A can produce either 75 units of A and 0 units of B or 60 units of A and 30 units of B. This means that in order to increase production of B from 0 to 30 units he has to decrease its production of A from 75 to 60 units i.e. in order to produce 30 units of B he has to sacrifice 75 - 60 = 15 units of A. Thus in order to produce 1 unit of B he has to sacrifice 15/30 = 1/2 units of A. Hence opportunity cost of producing 1 unit of B for country 2 is 1/2 units of A i.e. (1/2)A (NOTE : According to above table Opportunity cost of producing B is constant)
Hence, the correct answer is (e) 2A; 1/2 A