Let P_i = Price of iPhone P_M = Price of MacBook L_y = Unit labor requirement fo

ID: 1217219 • Letter: L

Question

Let P_i = Price of iPhone P_M = Price of MacBook L_y = Unit labor requirement for iPhone production L_M = Unit labor requirement for MacBook production P_i/P_M = Relative price of iPone to MacBook in the United States (U.S.) L_i/L_M = Opportunity cost of producing iPhone to MacBook in the U.S. If P_i/P_M Greaterthan L_i/L_M, then U.S. should specialize in the production of iPhone MacBook Both If P_i/P_M lessthanorequalto L_i/L_M, then U.S. should specialize in the production of iPhone MacBook Either If P_i/P_M = L_i/L_M, then U.S. can choose to specialize in the production of iPhone MacBook Either For Questions 8 and 9, let U.S. trode with Canada (astir denotes Canada) The following inequality L_i/L_M lessthan L_i astir/L_M astir implies U.S. has a Comparative Advantage in production. iPhone MacBook None L_M Greaterthanorequalto L_M astir means Canada is highly productive in MAcBook production, therefore Canada has in MacBook production. an Absolute Disadvantage a Comparative Advantage a Comparative Disadvantage an Absolute Advantage

Explanation / Answer

5. Option A is correct.

This is because when Pi/Pm > Li/Lm, this implies that the unit labour requirement in Macbook production is higher than the iPhone production. Also the relative price of iphone exceeds its opportunity cost (Li/Lm).

6. Option B is correct.

In this case, the opportunity cost of iphone is less than the relative price of iphone. So the U.S would prouce the Macbook.

7. Option C is correct.

This depicts the situation of an autarky. Here the relative prices are equal to the opportunity costs, so both the goods would be produced.

8. Option A is correct.

The opportunity cost of producing iphone is less in U.S than in Canada, that is, U.S can produce it (relatively) at a cheaper cost than Canada.

9. Option A is correct.

Absolute advantage in a good is said when a country has lower unit requirement of labour in producing a commodity than its trading partner.

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Let P_i = Price of iPhone P_M = Price of MacBook L_y = Unit labor requirement fo

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