Assume the following weekly production possibilities for the two countries in th
ID: 1152155 • Letter: A
Question
Assume the following weekly production possibilities for the two countries in the table, "East Side" and "West End." Each country has 100 workers available to produce either computers or automobiles or some combination of the two goods. Table 4A: East Side Table 4B: West End Output of Output of computers automobiles Output of Output of computers automobiles All labor produces All labor produces 1,000 750 500 250 200 150 100 0 0 computers Labor split 75/ 25 Labor split 50/50 Labor split 25/ 75 All labor produces computers 50Labor split 75/ 25 100Labor split 50/ 50 150 Labor split 25/ 75 25 50 75 100 50 All labor produces 0 200 0 automobiles automobiles 10. Which country has an absolute advantage in making computers? 11. Which person has an absolute advantage in making automobiles? 12. Which person has a comparative advantage in computers? 13. Which person has a comparative advantage in automobiles?Explanation / Answer
Absolute advantage hails from maximum production with same labor requirement. Here both sides have 100 units of labor so we see which side can produce which good in maximum units.
In computers, East side has absolute advantage as it produces 1000 units while West side produces 200 units.
In automobiles, East side has absolute advantage as it produces 200 units while West side produces 100 units.
Comparative advantage hails from lowest opportunity cost. East side produces 1000 computers or 200 automobiles so that the opportunity cost of 1 automobile is 5 computers. In West side the same opportunity cost is 2 computers.
In computers, East side has comparative advantage as its opportunity cost is 0.2 automobiles while West side has 0.5 automobiles
In automobiles, West side has comparative advantage as its opportunity cost is 2 automobiles while East side has 5 automobiles
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