Question

Assume: 1) only two commodities can be produced in each nation; 2) the table represents the maximum output of each good the nation can produce in a given time period if it uses all its resources in the production of that good; and 3) there is a constant trade-off between production of the two goods in each nation (i.e. a constant opportunity cost).

	Maximum production of smart phones (units)	Maximum production of tables (units)
South Korea	90	60
Indonesia	50	30

1. South Korea’s opportunity cost to produce an additional table is __________ smart phones.
2. South Korea’s opportunity cost to produce an additional smart phone is __________ tables.
3. Indonesia’s opportunity cost to produce an additional table is __________ smart phones.
4. Indonesia’s opportunity cost to produce an additional smart phone is __________ tables.
5. Which nation has a comparative advantage in table production? __________ .
6. Which nation has a comparative advantage is smart phone production? __________ .
7. If trade takes place between South Korea and Indonesia and trade is based on comparative advantage:
   1. ___________ will export smart phones.
   2. ___________ will export tables.
8. Which nation has an absolute advantage in table production? __________ .
9. Which nation has an absolute advantage in smart phone production? __________ .

Answer 1

Ans:

1. South Korea’s opportunity cost to produce an additional table is _____1.5_____ smart phones.

Explanation:

Opportunity cost to produce an additional table = 90 /60 = 1.5

2. South Korea’s opportunity cost to produce an additional smart phone is ___0.66_______ tables.

Explanation:

Opportunity cost to produce an additional smart phone = 60 /90 = 0.66

3. Indonesia’s opportunity cost to produce an additional table is ______1.66____ smart phones.

Explanation:

opportunity cost to produce an additional table = 50 / 30 = 1.66

4. Indonesia’s opportunity cost to produce an additional smart phone is ___0.6_______ tables.

Explanation:

opportunity cost to produce an additional smart phone = 30 /50 = 0.6

5. South Korea has a comparative advantage in table production.

6.Indonesia has a comparative advantage is smart phone production.

7. a . Indonesia will export smart phones

7. b . South Korea will export tables.

Explanation:

The nation will export that products which have lower opportunity cost .

8. South Korea has an absolute advantage in table production.

9.Indonesia has an absolute advantage in smart phone production