Question

Use the table to answer the following questions.

	Radios produced in 4 hours	Compasses produced in 4 hours
Russia	8	16
England	12	48

1. What is Russia’s Opportunity Cost for producing one radio? One compass?
2. What is England’s Opportunity Cost for producing one radio? One compass?
3. Who has absolute advantage in radios? Compasses?
4. Who has comparative advantage in radios? Compasses?

Note: For opportunity cost, I am pretty sure they are looking for calculations.

Answer 1

a) Russia's Opportunity Cost for producing one radio= 16/8= 2

Russia's Opportunity Cost for producing one compass= 8/16= 0.5

b) England's Opportunity Cost for producing one radio= 48/12= 4

England's opportunity cost for producing one compass= 12/48= 0.25

c) England has absolute advantage in radios because it can produce more radios than Russia.

England also has absolute advantage in compasses because it can produce more compasses than Russia.

d) Since, opportunity cost of producing radio is less for Russia than England, Russia has comparative advantage in radios.

Since, opportunity cost for producing compasses is less for England, England has a comparative advantage in compasses.