a)
The question requires us to determine the
a)
Explanation of Solution
The opportunity cost is the best next alternative for choosing a decision. If a firm is producing only two goods, then producing one good is possible when the firm has foregone the production of other goods.
The opportunity costs of producing a bushel of wheat in country A
The opportunity costs of producing a bushel of wheat in country B
b)
The question requires us to determine the country which has an
b)
Explanation of Solution
The country with high production of a product in absolute terms will have an absolute advantage in producing that product.
Since the production of wheat in country A is more than in country B. So, country A has an absolute advantage in producing wheat.
c)
The question requires us to determine the country which has a
c)
Explanation of Solution
The country with a lower opportunity cost of producing a product will have a comparative advantage in producing that product. A lower opportunity cost indicates a less quantity of foregone goods a country has to sacrifice to produce a particular product.
A nation having a comparative advantage explains its ability to produce more specific goods and services by using the given resources.
The opportunity costs of producing a unit of textile in country A
The opportunity costs of producing a unit of textile in country B
Since the opportunity cost of producing textiles is lower in country B, thus, country B has a comparative advantage in textile production.
Chapter 4 Solutions
Krugman's Economics For The Ap® Course
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