One person-day of labor produces: China 9 rice 3 computers India 4 rice 2 comput

Question

One person-day of labor produces:

China 9 rice 3 computers
India 4 rice 2 computers

a) Does any country have an absolute advantage? If so, which one?
b) For India, what is the resource (or opportunity) cost of rice (R) in terms of computers (C), and C
in terms of R?
c) For China, what is the resource (or opportunity) cost of R in terms of C, and C in terms of R?
d) Which country has a comparative advantage in what product?
e) Under what terms of trade will mutually beneficial trade occur?

Explanation / Answer

a. China,because 9>4 and 3>2. b. 1 rice=0.5 com, 1 com=2 rice for India c. 1 rice=0.22 com, 1 com=4.5 rice for China d. China has comparative advantage to produce rice,while India for Computer. e. terms of trade will be between 1 rice= 0.22 com and 1 com=2 rice.

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