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ID: 1207345 • Letter: H
Question
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Solution
Refer to Table 20.3. Determine the limits on the terms of trade for 1 pound of rice.
Between 1 calculator and 10 calculators
Between 1 calculator and 2 calculators
Between 5 calculators and 10 calculators
Between 1 calculator and 5 calculators
Between two-fifths of a calculator and 1 calculator
The following table shows the units of calculators and rice produced by a laborer in a day in Japan and Korea.
Table 20.3
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Solution
Explanation / Answer
Clearly Japan has an absolute advantage in the production of both calculator and rice. In the given time frame Japan can produce five times as much rice or twice as many calculator in comparision to Korea.
Japan must give up 2.5 units of rice to produce each additional unit of calulator, so the opportunity cost of 1 unit of calulator is 2.5 units of rice for Japan. Korea only has to give up 1 unit of rice to produce an additional unit of calulator, so the opportunity cost of 1 unit of calulator is 1 unit of rice for Korea.
Thus the correct answer is e. Between two-fifth of a calculator and 1 calculator
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