Question

Background information: A worker in the United States and a worker in China can each produce 1,000 pairs of jeans per week. A worker in the United States can produce 50 cell phones in a week, and a worker in China can produce 100 cell phones in a week. Answer the following questions based on this information.

Part A: If each country attempted to produce both jeans and cell phones, how many jeans and cell phones could each country produce?

What would be the total number of jeans and cell phones produced by the two countries combined? (Show your work.)

Part B: Calculate the opportunity cost of producing jeans for each country. (Show your work.)

Part C: Calculate the opportunity cost of producing cell phones for each country. (Show your work.)

Part D: Determine how many jeans should be produced by each nation. (Show your work).

Part E: If each nation should specialize in producing jeans and cell phones, explain why; use economic terminology you have learned in this unit in your explanation.

Part F: Finally, how many total jeans and cell phones will be produced by the two nations combined after specialization?

Answer 1

	Jeans	Cellphones
US	1000	50
China	1000	100

part A: US would produce 1000+50= 1050 of both goods

China would produce 1000+100= 1100 of both goods

Part B: for opportunity cost we find the cost of jeans in terms of cell phones

US: opportunity cost of jeans = 50/1000= 1/20; So, 1Jeans = 1/20 cell phones

China: opportunity cost of jeans = 100/1000= 1/10; so 1 jeans= 1/10 cell phones

Part C: US: opportunity cost of cell phones= 1000/50= 20; so, 1 cell phone= 20 jeans

China: opportunity cost of cell phones = 1000/100= 10; so 1 cell phone = 10 jeans

PArt D: on the basis of opportunity cost the nation which has lower opportunity cost in producing jeans should produce jeans and the other should produce no jeans

1/20<1/10 so, US has lower opportunity cost in producing jeans so US will produce 1000 jeans and China will produce 0 jeans, assuming there is complete specialisation

Part E: Now if they completely specialize in the production of jeans then the contry with lower opportunity cost will have higher comparative advantage in the production of jeans, so that country will choose to produce only jeans and trade it for cell phones.

Part F: Looking at cell phones 20>10 so, China has a lower opportunity cost in producing cellphones so it will produce all cell phones

China produces 100 cellphones and US produces 0

After specialisation both countries will produce (1000+0) Jeans + (0+100) cellphones

that is, 1100 of all the goods together