Question

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Assuming China’s domestic price is 5 containers of toys equals 10 bags of rice. Vietnam’s domestic...

Assuming China’s domestic price is 5 containers of toys equals 10 bags of rice. Vietnam’s domestic price is 10 containers of toys equals 30 bags of rice. Which country should specialize in producing toys and which country should specialize in producing rice? (Hint: Please use the opportunity cost to analyze the question and limit your answer to 150 words).

(containers/unit) (bags/unit)

Toys Rice Assumptions China -- output per unit of production input 5 10

Vietnam -- output per unit of production input 10 30

China -- total production inputs 1,000

Vietnam -- total production inputs 1,000

Expert Solution

China

Price terms

Opportunity cost of production of 1 bag of Rice in terms of Toys = 1/2 containers of toys

(Price of 1 bag of rice=Price of 1/2 container of toys)

production efficiency terms

1 unit of production input produces 10 bags of rice or 5 containers of toys

Opportunity cost of production of 1 bag of Rice in terms of Toys = 1/2 containers of toys

Vietnam

Price terms

Opportunity cost of production of 1 bag of Rice in terms of Toys = 1/3 containers of toys

(Price of 1 bag of rice=Price of 1/3 container of toys)

production efficiency terms

1 unit of production input produces 30 bags of rice or 10 containers of toys

Opportunity cost of production of 1 bag of Rice in terms of Toys = 1/3 containers of toys

As the opportunity cost of Rice is less in Vietnam , Vietnam should specialise in Producing Rice and China should specialise in producing Toys

With 1000 input units, Vietnam can produce 30000 bags of rice

and With 1000 input units, China can produce 5000 bags of toys

jeff jeffy answered 1 year ago

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