Question

In: Economics

Suppose that China has 60 workers. 4 chinese workers can produce a motorcycle and 6 chinese...

  1. Suppose that China has 60 workers. 4 chinese workers can produce a motorcycle and 6 chinese workers can produce a car. So china can produce a maximum of 15 motorcycles and a maximum of 10 cars.

America also has 60 workers. 3 American workers can produce a motorcycle and 4 American workers can produce a car. So america can produce a maximum of 20 motorcycles and a maximum of 15 cars.

  1. Which country has an absolute advantage in producing motorcycles?


  1. Which country has an absolute advantage in producing cars?


  1. Calculate the opportunity cost of producing motorcycles in each country.






  1. Which country has a comparative advantage in producing motorcycles?


  2. Calculate the opportunity cost of producing cars in each country.







  3. Which country has a comparative advantage in producing cars?

Solutions

Expert Solution

a)

Ans: America has an absolute advantage in producing motorcycles.

Ans: America has an absolute advantage in producing cars.

Ans: The opportunity cost of producing motorcycles in China = 0.67 cars and in America = 0.75 cars

Ans: China has a comparative advantage in producing motorcycles.

Explanation:

A country has an absolute advantage in the production of a good , which it produces more quantities of that good with the existing or available resources as compared to other country.

The opportunity cost of producing motorcycles in China = 10 /15 = 0.67 cars

The opportunity cost of producing motorcycles in America = 15/20 = 0.75

A country has an comparative advantage in  the production of a good in which it has lower opportunity cost as compared to other country.

b) Ans: The opportunity cost of producing cars in China = 1.5 motorcycles and in America = 1.33 motorcycles

Explanation:

The opportunity cost of producing cars in China = 15 /10 = 1.5 motorcycles

The opportunity cost of producing cars in America = 20 / 15 = 1.33 motorcycles

c) Ans: America has a comparative advantage in producing cars.

Explanation:

A country has an comparative advantage in  the production of a good in which it has lower opportunity cost as compared to other country.

Rahul Sunny answered 2 years ago
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