Question

In: Economics

Assume that Amanda and Carlos can switch between producing TVs and computers at a constant rate...

Assume that Amanda and Carlos can switch between producing TVs and computers at a constant rate

Hours needed to make 1

Hours needed to make 1

Amount produced in 40 hours

Amount produced in 40 hours

TV

Computer

TV

computer

Amanda

8

5

5

8

Carlos

20

10

2

4
  1. Assume that Amanda and Carolos each have 40 hours available. If each person divides his/her time equally between the production of TVs and computers, then what is total production/

____ Tvs                            _______ Computers

  1. What is the opportunity cost of 1 TV for /Amanda? For Carlos?

Amanda: _____ Carlos:______

  1. Who has the absolute advantage in TVs? Computers?
  2. Who has the comparative advantage in TVs? Computers?
  3. At which of the following prices would both Amanda and Carlos gain from trade with each other?

_____4 TVs for 7 computers

_____8 TVs for 10 computers

_____12 TVs for 18 computers

Solutions

Expert Solution

1) TVs produced by Amanda in 20 hours = 5/2 = 2.5

Computers produced by Amanda in 20 hours = 8/2 = 4

TVs produced by Carolos in 20 hours = 2/2 = 1

Computers produced by Carolos in 20 hours = 4/2 = 2

Total TV production = 2.5 + 1 = 3.5

Total Computers production = 4 + 2 = 6

Amanda;

5 TVs = 8 computers

1 TV = 8/5 = 1.6 computers

Opportunity cost of 1 TV is 1.6 computer.

Carolos;

2 TVs = 4 computers

1 TV = 4/2 = 2 computers

Opportunity cost of 1 TV is 2 computer.

Absolute Advantage:

Absolute advantage is the ability of a country to produce a good or service at a lower per unit cost as compared to any other country that produces same good or service.

Amanda has absolute advantage in the production of computers and TVs because Amanda is able to produce more TVs and computers as compared to Carolos.

Comparative Advantage

A country has a comparative advantage in producing that good if the opportunity cost of producing that good is lower in that country as compared to another country.

Amanda has comparative advantage in the production of TVs because of lower opportunity cost. Carolos has comparative advantage in the production of Computers.

At 4 TVs for 7 computers, both gains from trade.

Rahul Sunny answered 2 years ago
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