Use the chart below, which shows the output of Wallets and Coffee per day for China and Colombia, to solve questions 16-20 (YOU MUST USE NUMBERS IN YOUR ANSWERS):
China: Wallets = 8000, Coffee = 4000
Colombia: Wallets = 1000, Coffee = 6000
Per Unit Opportunity Cost:
China:
1 Wallet = _________ Coffee
1 Wallet = _________ Coffee
Colombia:
1 Coffee = _________ Wallets
1 Coffee = _________ Wallets
16. Which country has the absolute advantage in Wallets?
17. Which country has the comparative advantage in Wallets?
18. Which country has the comparative advantage in Coffee?
19. Which country should produce Wallets?
20. Which country should import Coffee?
Per Unit Opportunity Cost:
China:
1 Wallet = 0.5 Coffee
1 Coffee = 2 Wallets
Colombia:
1 Coffee = 0.17 Wallets
1 Wallet = 6 Coffee
16. China has the absolute advantage in Wallets.
17. China has the comparative advantage in Wallets.
18. Colombia has the comparative advantage in Coffee.
19. China should produce Wallets.
20. Colombia should import Coffee.
Show your math work
To find the opportunity cost for Wallets and Coffee in China and Colombia, use the following formulas:
Opportunity Cost = (Units of Good1 / Units of Good2)
China:
Opportunity Cost of 1 Wallet = (4000 Coffee / 8000 Wallets) = 0.5 Coffee
Opportunity Cost of 1 Coffee = (8000 Wallets / 4000 Coffee) = 2 Wallets
Colombia:
Opportunity Cost of 1 Coffee = (1000 Wallets / 6000 Coffee) = 0.17 Wallets
Opportunity Cost of 1 Wallet = (6000 Coffee / 1000 Wallets) = 6 Coffee
Based on these calculations:
16. China has the absolute advantage in the production of Wallets.
17. China has the comparative advantage in Wallets.
18. Colombia has the comparative advantage in Coffee.
19. China should produce Wallets.
20. Colombia should import Coffee.