Question

In: Economics

Suppose that in an hour an American worker can produce 200 clothes or 20 cars, while...

Suppose that in an hour an American worker can produce 200 clothes or 20 cars, while a Brazilian worker can produce 150 clothes or 10 cars. Each country has 8 hours available.

a. Who has the absolute advantage in the production of clothes?

b. Who has the absolute advantage in the production of cars?

c. Who has a comparative advantage in the production of clothes?

d. Who has a comparative advantage in the production of cars?

e. What is the opportunity cost for cars?

Solutions

Expert Solution

	Cloth	Car
America	1600	160
Brazil	1200	80

Working notes :-

1) Total numbers of hours available with each country is 8 hours.

2) America maximum production :-

a) Cloth = 200*8 = 1600

b) Car = 20*8 = 160

3) Brazil maximum production :-

a) Cloth = 150*8 = 1200

b) Car = 10*8 = 80

4) Opportunity cost in America:-

Cloth = 160/1600 = 0.1 unit of car

Car =1600/160 = 10 units of cloth

5) Opportunity cost in Brazil :-

Cloth = 80/1200= 0.07 units of car

Car = 1200/80 = 15 units of cloth

Answer a :-

Using the total number of hours available, America can produce 1600 units of clothes while Brazil can produce 1200 units of cloth. Therefore America has an absolute advantage in producing cloth.

Answer b :-

Using the total number of hours available America can produce 160 units of car while Brazil can produce 80 units of car. Therefore America has an absolute advantage and producing cars.

Answer c :-

The opportunity cost of cloth and America is 0.1 car while the opportunity cost of producing cloth in Brazil is 0.07 car. The opportunity cost of producing cloth is lower in Brazil therefore Brazil has a comparative advantage in producing cloth.

Answer d :-

The opportunity cost of producing cars in America is 10 units of cloth while the opportunity cost of producing car in Brazil is 15 units of cloth .As the opportunity cost of producing car is lower in America as comparasion to Brazil, therefore America has a comparative advantage introduction of cars.

Answer e :-

The opportunity cost of producing cars in America is 10 units of cloth per car while it is 15 units of clothes per car in Brazil.

Rahul Sunny answered 2 years ago

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