Question

he table below gives the production alternatives of two nations that are producing tractors and televisions,...

he table below gives the production alternatives of two nations that are producing tractors and televisions, using equal amounts of resources.

Tractors Televisons
Ritzville 2 8
Clubtown 4 12

Calculate the opportunity cost of producing each of the following:

(i) One tractor in Ritzville.

(ii) One television in Clubtown.

(b) Identify which nation has the comparative advantage in each of the following:

(i) Tractor production

(ii) Television production

(c) Now assume that the productivity of Clubtown’s workers triples for each good.

(i) Which country has a comparative advantage in television production?

(ii) Explain how you determined your answer.

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Answer #1

The opportunity cost for one tractor In Ritzville is 4 (8/2=4) while the opportunity cost for one television in Clubtown (12/4=3) that means for every one unit of tractor 3 televsion are produced. But here we have to calculate for 1 television so opportunity cost will be 1/3.

B) For television comparative advantage is of Ritzvelle and tractor poduction is of Clubtown.

C) If the productivily of workers triples, then also Ritzvelle will have comparative advantage in television because it is giving up 1/4 units and Clubtown is giving up 1/3 units.

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