Question

The U.S. and China produce Chicken (C) and Tires (T). Their PPF functions are given by:

US:                  60T+20C=2400

China:             70T+35C=2450   

(Hint: it may help to draw the PPF of both countries for this question)

What is the opportunity cost of TIRES in US? How about China?

Select one:

a.

US: opportunity cost of 1 Tire = 1/2 Chickens; China: opportunity cost of 1 Tire = 1/2 Chickens

b. US: opportunity cost of 1 Tire = 3 Chickens; China: opportunity cost of 1 Tire = 2 Chickens

c. US: opportunity cost of 1 Tire = 2 Chickens; China: opportunity cost of 1 Tire = 3 Chickens

d.

US: opportunity cost of 1 Tire = 1/3 Chickens; China: opportunity cost of 1 Tire = 1/2 Chickens

The U.S. and China produce Chicken (C) and Tires (T). Their PPF functions are given by:

US:                  60T+20C=2400

China:             70T+35C=2450   

(Hint: it may help to draw the PPF of both countries for this question)

Which of the following statement is correct?

Select one:

a. US has absolute advantage in CHICKENS and TIRES and comparative advantage in Tires

b. US has absolute advantage in CHICKENS and TIRES and comparative advantage in Chickens

c. US has absolute advantage in TIRES only and comparative advantage in Tires

d. US has absolute advantage in CHICKENS only and comparative advantage in Chickens

The U.S. and China produce Chicken (C) and Tires (T). Their PPF functions are given by:

US:                  60T+20C=2400

China:             70T+35C=2450   

(Hint: it may help to draw the PPF of both countries for this question)

Suppose that countries specialize in their comparative advantages and trade. However, they also need to meet their food needs and to do so, a total world production of 130 chickens is needed. What is the maximum number of tires produced in the world after both countries meet their needs for food?

Select one:

a. 40

b. 35

c. 30

d. 25

e. none of the above

Answer 1

1> In the US, they can produce 2400/60 = 40 tires or 2400/20=120 chicken

So, the opp. cost of a tire in the US is 120/40 = 3 Chicken.

Thus, the correct option is B.

2> In the US, they can produce 2400/60 = 40 tires or 2400/20=120 chicken

In China, they can produce 2450/70 = 35 tires or 2450/35=70 chicken

So, the opp. cost of a tire in China is 70/35 = 2 Chicken.

So, China has comparative advantage over tire and the US has over Chicken

Thus, b is correct.

3> c

Since 130 chicken is needed, US produces 120 chicken at full capacity and the rest 10 of them will be produced by China.

So,  70T+35*10=2450

T=(2450-350)/70=30

Thus, China produces 30 Tires.