Question

(a) Calculate the opportunity cost of a computer in China.
(b) If the two countries specialize and trade, which country will import computers? Explain.
(c) If the terms of trade are 4 cars for 1 computer, would trade be advantageous for each of the following?
(i) United States:
(ii) China:
(d) If productivity in China doubles, which country has the comparative advantage in the production of cars?

Answer 1

The opportunity cost of a computer in China is 2 cars.

If the two countries specialize and trade, the country that will import is the United States because it has a higher opportunity cost in the production of computers.

The terms of trade would be beneficial to both China and the United States.

If productivity in China doubles, the country that has a comparative advantage in the production of cars is the United States.

What is comparative advantage?

Comparative advantage is when a country produces a good at a lower opportunity cost when compared to other countries.

A country should specialise in producing a good for which it has comparative advantage and import goods for which it does not have comparative advantage.

For China:

Opportunity cost in producing computers = 1200 / 200 = 6 cars

Opportunity cost in producing cars = 200 / 1200 = 1/6 computers

For United States:

Opportunity cost in producing computers = 400 / 200 = 2 cars

Opportunity cost in producing cars = 200 / 400 = 1/2 computers

To learn more about comparative advantage, please check: brainly.com/question/25812820