In: Economics
Production |
Country A Labour |
Country B Labour |
1 of Widget |
4 |
5 |
60 of Something |
5 |
10 |
Assume that each country has 30 million workers.
(i) If there is no trade, and in each country 20 million workers produce widgets and 10 million workers produce something, how many widgets and how many something will each country produce? What will be the total production of each product?
(ii) What is the opportunity cost of a widget in: (i) Country A; (ii) Country B?
(iii) What is the opportunity cost of 60 something in: (i) Country A; (ii) Country B
(iv) Which country has a comparative advantage in which product?
(v) Explain the principle of increasing opportunity cost and does this example illustrate the principle of increasing opportunity cost.
(vi) What change might shift both countries production possibilities frontier outwards.