Answered: Italia Nire Guns Butter Guns Butter 12…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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This question pertains to the addendum to Chapter 2. The
following tables show the production possibilities for two
hypothetical countries, Italia and Nire. Which country has the
comparative advantage in producing butter? Which country has
the comparative advantage in producing guns? What would be a
mutually agreeable rate of exchange between the countries?

Italia
Nire
Guns
Butter
Guns
Butter
12
16
8
12
1
4
4
8
6
4
3
4

Definition Video Definition Ability of a country to produce goods and services at a lower opportunity cost compared to other countries. Here, opportunity cost refers to the forgone units of one good in order to produce one more unit of another good. For example, the opportunity cost of producing good X in country A is 2Y and in country B is 1.25Y. Country B has a lower opportunity cost of producing good X than country A. Therefore, country B has a comparative advantage in the production of good X. Video

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