Refer to the graphs above. It shows the production possibilities frontier for tw

Question

Refer to the graphs above. It shows the production possibilities frontier for two countries, A and B, producing 2 goods, stereos and computers. Based on the graphs we can say the country B's opportunity cost of 1 computer is _________, and country B's opportunity cost of 1 stereo is __________.

Select one:

a. 2 stereos ; 1 / 2 computer

b. 40 stereos ; 20 computers

c. 10 stereos ; 5 computers

d. 5 stereos ; 1 / 5 computer

Refer to the graphs above. It shows the production possibilities frontier for two countries, A and B, producing 2 goods, stereos and computers. According to the graph, which is true?

Select one:

a. country B has the comparative advantage in computers

b. country A has the comparative advantage in computers

c. country B has the absolute advantage in stereos

d. Country A has the comparative advantage in nothing

Refer to the graphs above. It shows the production possibilities frontier for two countries, A and B, producing 2 goods, stereos and computers. According to the theory of comparative advantage:

Select one:

a. both countries should just produce computers, and not trade with each other

b. country A should produce both stereos and computers itself and not trade with country B

c. country A should produce stereos, country B should produce computers, then they should trade

d. country A should produce computers, country should produce stereos, then they should trade

Refer to the graphs above. It shows the production possibilities frontier for two countries, A and B, producing 2 goods, stereos and computers. Assume the two countries are currently not trading and country A is producing 24 stereos and 48 computers (point A). And country B is producing 10 stereos and 15 computers (point B). If these two countries stopped producing their current points specialized where they had the comparative advantage and then traded, what would be the gains from trade?

Select one:

a. total computer production would increase from 63 to 80 , and total stereo production would increase from 34 to 40.

b. total computer production would increase from 20 to 40 , and total stereo production would increase from 60 to 80.

c. total computer production would increase from 63 to 70 but total stereo production would fall from 34 to 30

d. total computer production would fall from 63 to 60, and total stereo production would fall from 34 to 20

Explanation / Answer

a) "A"

2 stereos and 1/2 computer. Country B will produce 2 stereos if they gave up 1 computer but only half computer if they gave up one stereo.

b) "C"

Country B has a comparative advantage in the production of stereo. (less absolute disadvantage = comparative advantage).

c) "D"

As per the law of comparative advantage, country A should produce computer and country B should produce stereo.  

d) "A"

Total computer production would increase from 63 to 80, and total stereo production would increase from 34 to 40.

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