The following table shows production possibilities for Indonesia and Bolivia, as

Question

The following table shows production possibilities for Indonesia and Bolivia, assuming that there is no trade. produced per hour, if all resources are fully employed Each number represents units of product Product 1400 (Round all responses to two decimal places) The opportunity cost of producing cars in Indonesia is units of clothing per car The opportunity cost of producing cars in Bolivia isunits of clothing per car Thus Indonesia has a comparative advantage inand Bolia has a comprative adrantage in If Indonesia specializes in cars and Bolivia specializes in clothing, total world production of cars and clothing will and total world consumption

Explanation / Answer

1. In Indonesia,

400 cars = 700 clothing

Or, 1 car = 700/400 clothing = 1.75 clothing

Thus, opportunity cost of 1 car in Indonesia is 1.75 clothing units

2. In Bolivia,

300 car = 1400 clothing

Or, 1 car = 1400/300 = 4.67 units clothing

Thus, opportunity cost of 1 cloth is 4.67 units clothing in Bolivia.

3. Indonesia has comparative advantage in production of cars and Bolivia as in clothing

(Reason: Due to lower opportunity cost)

4. Production = 400+1400 = 1800 units

Consumption = 1800 units

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