please answer both! 1) In a circular flow diagram, when someone purchases a cell
ID: 1162193 • Letter: P
Question
please answer both!
1) In a circular flow diagram, when someone purchases a cell phone, they participate in the markets for ...
2) If the US could produce 5 televisions per hour of labor and China could produce 3 televisions per hour of labor, would it imply that the U.S. should specialize in television production? Assume that labor is the only relevant resource and both countries capable of producing other goods and services. Explain your answer using the concepts of comparative and/or absolute advantage.
Thank you!
Explanation / Answer
1) Product market or goods and services market where consumers buy finished goods.
2)
Some countries are better off at producing certain goods and have an absolute advantage. Absolute advantage means that a country can produce a good more efficiently i.e. using less resources than the other country. For example, if Mexico can produce a bag of rice using 10 labor hours and Bangladesh can produce one bag of rice using 5 labor hours we can safely conclude that Bangladesh had absolute advantage in the production of rice since it uses less labor hours than Mexico per bag of rice.
The principle of Comparative Advantage states that a country will produce the goods which it can produce most efficiently. The country will have lower opportunity cost in the production of those goods. The country will export those goods which have a lower opportunity cost, i.e. in which it has comparative advantage) and import those goods which have a higher opportunity cost. Opportunity cost is the value of the next best alternative foregone.
In this problem, we can say U.S. has absolute advantage in the production of televisions as it can produce 5 televisions per hour of labor, whereas, China can only produce 3 televisions per hour. We do not have information on the production of other goods and services, so we can calculate the opportunity cost.
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