Table 2-5 Lamber (board 7o Cell Phone 90 hours 100 bours 3 hours D) Refer to TaN
ID: 1133008 • Letter: T
Question
Table 2-5 Lamber (board 7o Cell Phone 90 hours 100 bours 3 hours D) Refer to TaNe 2-5. This table shows the sumber of labor hours phone and a board foot of lumber in Estonia and Finland produce a roquired to Faled a Which coustry has an absolute advantage in the production of cell phones? b. Which country has an absolute advantage in the producticn of lumber? Est What is Estoeia's opportunity cost of producing one cell phone? d What is Finland's opportunity cost of peroducing one cell phone? What is Essonia's opportunity cost of prodacing one board of lumber? f What is Finlands opportunity cost of producing one board foot of lumber? advantage, who should peoduce cell phones? g If each country specializes in the production of the product in which it has a comparative advantage, who should produce lumbor? a. If each country has a total of 3,600 labor hours to devote to the production of the two goods, draw the production possibilities frontier for cach country. Put "Cell Phone" on the horizontal axis and "Lumber" on the vertical axis. Be sure to identify the intencept valaes on your graphs b. Suppose each country allocates 50% ns labor hours to lumber production of cell phones. Show each country's output of the two peodacts c. If the two countries do not trade and consume whatever tbey prodace, identify the current production and consamption point for each country oe their respective prodaction possibilities frontiers, Label Estonia's consumption point "E" and Finlands consumpion point,F d. Sappose the two countries specialize and trade. Who should produce cell phones and who should produce lumber? c. Show each country's output with specialization f Did specialization incrcase the combined outpat for the two countries without any increase inresources? If so, by how much? Suppose Estonia and Finland agroe to trade so that in exchange for 400 board feet of lumber, the exporter of lember receives 19 cell phones. Compate cach country's consumption bundle afher trade h Show the consumption points after trade on each country's production possibilities froatic. Label these points "1" for Estonia and"P" for Finland Has trade made the two countries better off? Explain your answer then draw the trade ise. Is your answer consistent with the Mercantilist view of trade? Justify your answerExplanation / Answer
Answer
1)
a) In Estonia, With 1 hour we can produce 1/90 cell phone and in Finland, we can produce 1/100 cell phone. As we can produce more in Estonia in 1 hour, hence Estonia has absolute advantage in producing cell phone.
b) In Estonia, With 1 hour we can produce 1/3 board foot of lumber and in Finland, we can produce 1/5 board foot lumber. As we can produce more in Estonia hence Estonia has absolute advantage in producing lumber.
c) In Estonia, In order to produce 1 cell phone we have to give 90 hours and with 90 hours we can produce 90/3 = 30 board foot of lumber. Hence, Estonia's Opportunity Cost of producing 1 cell phone is 30 board foot of lumber.
d) In Fiinland, In order to produce 1 cell phone we have to give 100 hours and with 100 hours we can produce 100/5 = 20 foot of lumber. Hence, Finland's Opportunity Cost of producing 1 cell phone is 20 board foot of lumber.
e) In Estonia, In order to produce 1 lumber we have to give 3 hours and with 3 hours we can produce 3/90 = 1/30 cell phones. Hence, Estonia's Opportunity Cost of producing 1 board foot of lumber is 1/30 cell phones.
f) In Finland, In order to produce 1 lumber we have to give 5 hours and with 5 hours we can produce 5/100 = 1/20 cell phones. Hence, Finland's Opportunity Cost of producing 1 board foot of lumber is 1/20 cell phones.
g) As we can see from above parts that opportunity cost of producing Cell phone is lower in finland than Estonia hence, Finland has comparative Advantage in producing Cell phones.
h) As we can see from above parts that opportunity cost of producing lumber is lower in Estonia than finland hence, Estonia has comparative Advantage in producing lumber.
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