Question

V. What is the opportunity cost of producing Rice for China?____________ for Trinidad? ______________.

VII What is the opportunity cost of producing Rum for China?_____________for Trinidad?_____________.

VIII. Who is the lowest opportunity cost producer of Rum? _____________of Rice?____________.

IX. At what range of prices (in terms of Rice) will China and Trinidad find it beneficial to trade Rum.

X. Illustrate what will happen to each country’s PPF after they decide to specialize and trade.

China		Trinidad
Rice	Rum	Rice	Rum
90	0	60	0
60	3	40	20
30	6	20	40
0	9	0	60

Answer 1

5) Opportunity cost of producing Rice for China = 9/90 = 0.1 Rum.

opportunity cost of producing Rice for Trinidad = 60/60 = 1 Rum.

6) Opportunity cost of Rum for China = 90/9 = 10 Rice.

Opportunity cost of Rum for Trinidad = 60/60 = 1 Rice

7) Trinidad have lower opportunity cost for Rum and China have lower opportunity cost for Rice.

8) Rum should be traded between 1 to 10 Rice for 1 Rum. Range of trading prices is decided between the opportunity costs of that good. Here Opportunity cost of 1 Rum is 10 Rice for China and 1 Rice for Trinidad. So prices will be decided between these two opportunity costs.

9) After specialisation PPF of each country will shift outward. Here China must specialize in Rice and Trinadad must specialise in Rum.

#Please rate positively...thank you