Suppose that a worker in radio land can produce either for radios or one television per...

Suppose that a worker in radio land can produce either for radios or one television per year and a worker in TV Land can produce either two radios or five televisions per year each nation has a hundred workers in each country specializes according to the principle of comparative advantage of Radiolab trades a hundred television to TV land in exchange for a hundred radios year then each country's Max and consumption of new radios and televisions televisions per year will be

Higher than it would be in the absence of trade because of the game to trade

B) the same as it would be in the absence of trade

C) less than it would be in the absence of trade because neither country is specializing in the product in which it has a comparative advantage

D) less than it would be in the absence of trade because tvland has absolute advantage in both goods and so it cannot benefit by trading with radio land

Solutions

Expert Solution

Given the production of both TVland and radioland of TV and Radio, Radioland can produce either 4 Radios or 1 TV with one unit of labour, so opportunity cost of 1 radio is 1/4 TV and of 1 TV is 4 radios.

Similarly TV land can produce either 2 radios or 5 TVs. So opportunity cost of one radio is 5/2 TV and of one TV is 2/5 radio.

Hence the opportunity cost of 1 radio is less in radioland and of one TV is less in TV land. So they both have comparative advantages in the production of respective goods.

Also now that each country would be producing the good they are specialising in, 400 radios and 500 TVs would be produced.

Trading 100 each, the radioland would have 300 radios and 100 TVs and TVland would have 100 radios and 400 TVs.
Earlier without any trade, if each country would be producing half of both the goods then before trade, Radioland had 200 radios and 50 TVs and TVland has 100 radios and 250 TVs.

So the production and consumption would be more than it was in absence of trade because of gains from trade.

Answer would be option A)

(You can comment for doubts)

Rahul Sunny answered 1 year ago

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