Wednesday
October 1, 2014

Homework Help: Micro economics

Posted by Anonymous on Monday, February 7, 2011 at 3:58pm.

Below is the production possibility information of small nations Arboc and Arbez, which can produce two goods, wheat, and coffee. The maximum quantity of each good is shown in the table below. Assume the two nations trade in a world containing many small nations. Costs are constant within each country.
ARBOC
WHEAT and COFFEE
120 and 0
0 and 30

ARBEZ
WHEAT and COFFEE
120 and 0
0 and 20

1. What is the opportunity cost of one unit of wheat in Arboc?
2. What is the opportunity cost of one unit of wheat in Arbez?
3. Which country has a comparative advantage in the production of wheat?
4. What is the opportunity cost of one unit of coffee in Arboc?
5. What is the opportunity cost of one unit of coffee in Arbez?
6. Which country has a comparative advantage in the production of coffee?
7. Based only on comparative advantage,
Arboc should produce which good?
Arbez should produce which good?
8. The terms of trade are 2 units of wheat per unit of coffee,
Arboc should produce which good?
Arbez should produce which good?
9. The terms of trade are 5 units of wheat per unit of coffee,
Arboc should produce which good?
Arbez should produce which good?
10. The terms of trade are 6 units of wheat per unit of coffee. Which country could not gain from trade?

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