1. Consider the following table for neighboring nations of Quahog and Pawnee. As
ID: 1211132 • Letter: 1
Question
1. Consider the following table for neighboring nations of Quahog and Pawnee. Assume that the opportunity cost of producing each good is constant.
Product
Quahog
Pawnee
Meatballs (per hour)
4,000
2,000
Clams (per hour)
8,000
1,000
a. What is the opportunity cost of producing meatballs In Quahog?
b. What is the opportunity cost of producing clams in Quahog?
c. What is the opportunity cost of producing clams in Pawnee?
d. Which country has a comparative advantage in producing meatballs?
2. Which of the following claims is true?
A. The United States has a trade deficit in both merchandise (goods) trade and service trade.
B. The United States has a trade surplus in both merchandise (goods) trade and service trade.
C. The United States has a trade deficit in merchandise (goods) trade, but a surplus in service trade.
D. The United States has a trade surplus in merchandise (goods) trade, but a deficit in service trade.
Product
Quahog
Pawnee
Meatballs (per hour)
4,000
2,000
Clams (per hour)
8,000
1,000
Explanation / Answer
1. a. opportunity cost of producing meatballs In Quahog = 8000/4000 = 2 Clams
b. opportunity cost of producing clams in Quahog = 4000/8000 = 0.5 meatballs
c. opportunity cost of producing clams in Pawnee = 2000/10000 = 2 meatballs
d. Pawnee has a comparative advantage in producing meatballs. Because the opportunity cost of producing meatballs in Pawnee = 1000/2000 = 0.5 clams which is less than Quahog
2. C. The United States has a trade deficit in merchandise (goods) trade, but a surplus in service trade.
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