Question

In: Economics

The table below shows the bushels of corn and bottles of wine that China and U.S....

  1. The table below shows the bushels of corn and bottles of wine that China and U.S. can produce from one day of labor under three different hypothetical situations.

Product

Case 1

Case 2

Case 3

China

U.S.

China

U.S.

China

U.S.

Corn(bushels)

4

2

4

1

4

1

Wine(bottles)

2

1

3

2

2

2

  1. Use the table above to show for each case the commodity in which each country has a comparative advantage or disadvantage. Show your work. Answer the question by calculating relative prices.

Solutions

Expert Solution

Comparative Advantage

Case 1

                                                     

China.                    U.S.

Corn (Bushels)                                 4                         2

Wine (Bottles)                                   2                         1

                                                                                                                                                                    China’s opportunity cost of producing corn is (2/4) or ½ bottle of wine.

U.S. opportunity cost of producing corn is (1/2) or ½ bottle of wine.

        China’s opportunity cost of producing wine is (4/2)=2 bushels of corn.

          U.S.’s opportunity cost of producing wine is (2/1)= 2 bushels of corn.

China

U.S.

Corn (Bushels) in terms of wine bottles (Pc/Pw)                               

1/2

1/2

Wine (Bottles)   in terms of bushels of corn (Pw/Pc)

2

2

Case 2

China.              

U.S.

Corn (Bushels)

4

1

Wine (Bottles)  

3

2

China’s opportunity cost of producing corn is (3/4) or 3/4 bottle of wine.

U.S. opportunity cost of producing corn is (2/1) or 2 bottles of wine.

        China’s opportunity cost of producing wine is (4/3)=1.33 bushels of corn.

          U.S.’s opportunity cost of producing wine is (1/2)= 1/2 bushel of corn.

China

U.S.

Corn (Bushels) in terms of wine bottles (Pc/Pw)                               

3/4

2

Wine (Bottles)   in terms of bushels of corn (Pw/Pc)

1.33

1/2

Rahul Sunny answered 2 years ago
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