Question

1. Consider the following table.

            Country A       Country B

Bananas       4              5

Apples           2              10

Numbers denote hours to produce 1 unit

The world per unit gains of specializing according to

Comparative advantage are...

                       

A) 1 apple; 2 bananas

                       

B) 1 apple; 1 banana

                       

C) 2 apples; 2 bananas

                       

D) 2 apples; 1 banana

2.

Consider the following table.

	Country A	Country B
Bananas	4	5
Apples	2	10

Numbers denote hours to produce 1 unit

Suppose that Country A and B's
maximum production
of bananas is 1000. The amount of hours of work available in A is
_____________________

Selected Answer:

Answers:

not enough information

250

4000

1000

3. Consider the following table.

	Country A	Country B
Bananas	4	5
Apples	2	10

Numbers denote hours to produce 1 unit

Country __________ has a comparative
advantage at _________________
because there the price of bananas
relative to the price of apples is
_________________, while in Country
_________________ is ________________

Selected Answer:
Answers:	B; bananas; 1/2; A; 1/2
	B; apples; 2; A; 1/2
	A; bananas; 2; B; 2
	A; apples; 2; B; 1/2

Answer 1

1. Not understood.

2. The amount of hours of work available in A is 1000 hours/4 hour = 250

3. A country has a comparative advantage in producing that good if the opportunity cost of producing that good is lower in that country as compared to another country.

Country A:

4 bananas = 2 Apples

1 banana = 2/4 = 0.5 apples

1 apple = 2 banana

Country B:

5 bananas = 10 apples

1 banana = 2 apples

1 apple = 0.5 banana

Opportunity cost of producing 1 banana is less when it is produced by Country A. So, Country A has comparative advantage in the production of banana while Country B has comparative advantage in producing Apples.

c) A; bananas; 2; B; 2 is the answer.