Question

you are given that Happy Land can produce 10 units of widgets or 5 units of do-dads per set of inputs. Meanwhile, Sad Land can produce 9 units of widgets or 3 units of do-dads per set of inputs

23) In terms of ABSOLUTE advantage, the two countries are such that:

A) Happy has the absolute advantage in widgets and Sad in do-dads

B) Happy has the absolute advantage in do-dads and Sad in widgets

C) Happy has the absolute advantage in both goods

D) Sad has the absolute advantage in both goods

E) None of the above

24) In terms of RELATIVE advantage, the two countries are such that:

A) Happy has the relative advantage in widgets and Sad in do-dads

B) Happy has the relative advantage in do-dads and Sad in widgets

C) Happy has the relative advantage in both goods

D) Sad has the relative advantage in both goods

E) None of the above

25) The Happy should trade _________________ to Sad for _____________. Furthermore, the “price range” for do-dads would be _____________________.

Answer 1

(23)

	Widgets	do-dads
Happy Land	10	5
Sad Land	9	3

Happy land can produce either a maximum of 10 widgets or 5 do-dads.

Sad land can produce either a maximum of 9 widgets or 3 do-dads.

Happy Land has absolute advantage in the production of both goods because happy land can produce more of both goods than sad land.

Answer: Option (C)

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(24)

	Opportunity cost of producing widgets in terms of do-dads	Opportunity cost of producing do-dads in terms of widgets.
Happy land	(5-10) = 0.5 do-dads	(10/5) =2 widgets
Sad land	(3 /9) = 0.33 do-dads	(9/3) = 3 widgets

Happy land opportunity cost of producing do-dads is lower than the sad's land opportunity cost of producing do-dads. It means Hapy land has a relative advantage in do-dads production.

Sad land opportunity cost of producing widgets is lower than the Happy land opportunity cost of producing widgets. It means Sad land has a relative advanatage in widgets production.

Answer: Option (B)

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(25) The Happy should trade do-dads to Sad for widgets. Furthermore, the price range for do-dads would be " 2 Widgets < 1 do-dads < 3 widgets."