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Suppose China has 1500 TV sets, while South Korea has 2000 calculators. They agree to trade...

Suppose China has 1500 TV sets, while South Korea has 2000 calculators. They agree to trade 3 TV sets for 5 calculators. If China wants to trade South Korea 1200 TV sets, South Korea's consumption possibilities will be [______] calculators and [______] TV sets

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Answer #1

The given exchange rate is : 3 tv = 5 calculator => 1 tv = 5/3 calculator.

Hence the above exchange rate means that if China gives South Korea 1 calculator then it will recieve 5/3 calculators in return. So if China gives 1200 tv sets to South Korea then it will recieve (5/3) * 1200 i.e 2000 calculators in return. So the calculators remaining with South Korea after trade with China will be zero and tv sets recieved from Chna is 1200.

So South Korea’s consumption possibility is 0 calculators and 1200 Tv sets if it agrees to trade with china.

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