Question

For questions 7 and 8, use the following table, which shows how many beer cases or tea bags can be produced in city X and city Y in one hour:

Tea Bags . Beer Cases

X 5 . 10

Y . 4 . 4

7. city Xs' opportunity cost of producing one case of beer is _____ tea bags:

A) 4/10=0.4

B) 10/4=2.5

C) 5.10=0.5

D) 10/5=2

8. According to the table above, city X has;

A) a comparative advantage in everything

B) a comparative advantage in beers, but not in teas

C) a comparative advantage in teas but not in beers

D) City X does not have a comparative advantage in anything.

Answer 1

7)

The correct answer is (C) 5.10=0.5

We can see from above that City X can produce either 10 beer cases or 5 tea bags in 1 hour. Hence in order to produce 10 beer case it has to sacrifice 5 tea bags and hence in order to produce 1 beer case country X has to sacrifice (5/10) = 1/2 tea bags.

Hence city Xs' opportunity cost of producing one case of beer is 5/10 = 0.5 tea bags

Hence, the correct answer is (C) 5.10=0.5

8)

The correct answer is (B) a comparative advantage in beers, but not in teas

We can see from above that City X can produce either 10 beer cases or 5 tea bags in 1 hour. Hence in order to produce 10 beer case it has to sacrifice 5 tea bags and hence in order to produce 1 beer case country X has to sacrifice (5/10) = 1/2 tea bags.

Hence city Xs' opportunity cost of producing one case of beer is 5/10 = 0.5 tea bags

We can see from above that City Y can produce either 4 beer cases or 4 tea bags in 1 hour. Hence in order to produce 4 beer case it has to sacrifice 4 tea bags and hence in order to produce 1 beer case country Y has to sacrifice (4/4) = 1/1 tea bags.

Hence city Ys' opportunity cost of producing one case of beer is 4/4 = 1 tea bags

Hence opportunity cost of producing Beer case in lesser in City X and hence City X has comparative advantage in producing Beer cases.

We can see from above that City X can produce either 10 beer cases or 5 tea bags in 1 hour. Hence in order to produce 5 tea bags it has to sacrifice 10 beer cases and hence in order to produce 1 tea bag country X has to sacrifice (10/5) = 2 tea bags.

Hence city Xs' opportunity cost of producing one Tea Bag is 10/5 = 2 Beer cases

We can see from above that City Y can produce either 4 beer cases or 4 tea bags in 1 hour. Hence in order to produce 4 tea bags it has to sacrifice 4 beer cases and hence in order to produce 1 tea bag country Y has to sacrifice (4/4) = 1 tea bags.

Hence city Ys' opportunity cost of producing one Tea Bag is 4/4 = 1 Beer cases

Hence opportunity cost of producing Tea bag in lesser in City Y and hence City Y has comparative advantage in producing Tea Bags.

Hence, the correct answer is (B) a comparative advantage in beers, but not in teas