Assume that Aruba and Iceland can switch between producing coolers and producing

Question

Assume that Aruba and Iceland can switch between producing coolers and producing radios at a constant rate.

Labor Hours

Needed to Make 1

Cooler

Radio

Aruba

4

10

Iceland

2

8

Refer to Table Above. Aru4ba’s opportunity cost of one cooler is

a.

0.4 radio and Iceland’s opportunity cost of one cooler is 4 radio.

b.

0.4 radio and Iceland’s opportunity cost of one cooler is 0.25 radio.

c.

2.5 radios and Iceland’s opportunity cost of one cooler is 0.25 radio.

d.

2.5 radios and Iceland’s opportunity cost of one cooler is 4 radios.

Labor Hours

Needed to Make 1

Cooler

Radio

Aruba

4

10

Iceland

2

8

Explanation / Answer

Ans:

Option A

0.4 radio and Iceland’s opportunity cost of one cooler is 4 radio.

comparative advantage is the advantage a country has if it can produce a good at a lower opportunity cost than another country.

Opportunity cost of producing cooler

For the Aruba to produce 1 unit of cooler, it has an opportunity cost of 0.4 radio i.e (4/10)

This means with the labor hours used to produce cooler, Aruba can produce 0.4 radio.

For the Icelands to produce 1 unit of cooler, it has an opportunity cost of 4 radio i.e (8/2)

This means with the labor hours used to produce cooler, icelands can produce 4 radio.

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.