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 COFFEE
120 0
0 30
ARBEZ
WHEAT COFFEE
120 0
0 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?
this is the correct table
ARBOC
WHEAT COFFEE
120 and 0
0 and 30
Arbez
Wheat Coffee
120 and 0
0 and 20
can anybody just explain how to do 7,8,9,10
1. The opportunity cost of one unit of wheat in Arboc can be determined by comparing the quantities of wheat and coffee that can be produced in Arboc. The opportunity cost is the amount of coffee that must be given up to produce one additional unit of wheat.
In Arboc, the maximum quantity of wheat that can be produced is 120, and the maximum quantity of coffee is 0. Therefore, the opportunity cost of one unit of wheat in Arboc is 0 units of coffee.
2. Similarly, the opportunity cost of one unit of wheat in Arbez can be determined by comparing the quantities of wheat and coffee that can be produced in Arbez.
In Arbez, the maximum quantity of wheat that can be produced is 120, and the maximum quantity of coffee is 0. Therefore, the opportunity cost of one unit of wheat in Arbez is 0 units of coffee.
3. To determine which country has a comparative advantage in the production of wheat, we compare the opportunity costs of wheat in both countries. The country with a lower opportunity cost of producing wheat has a comparative advantage.
In Arboc, the opportunity cost of one unit of wheat is 0 units of coffee.
In Arbez, the opportunity cost of one unit of wheat is also 0 units of coffee.
Since both countries have the same opportunity cost of producing wheat, neither country has a comparative advantage in the production of wheat.
4. The opportunity cost of one unit of coffee in Arboc can be determined by comparing the quantities of wheat and coffee that can be produced in Arboc. The opportunity cost is the amount of wheat that must be given up to produce one additional unit of coffee.
In Arboc, the maximum quantity of wheat that can be produced is 120, and the maximum quantity of coffee is 30. Therefore, the opportunity cost of one unit of coffee in Arboc is 4 units of wheat.
5. Similarly, the opportunity cost of one unit of coffee in Arbez can be determined by comparing the quantities of wheat and coffee that can be produced in Arbez.
In Arbez, the maximum quantity of wheat that can be produced is 120, and the maximum quantity of coffee is 20. Therefore, the opportunity cost of one unit of coffee in Arbez is 6 units of wheat.
6. To determine which country has a comparative advantage in the production of coffee, we compare the opportunity costs of coffee in both countries. The country with a lower opportunity cost of producing coffee has a comparative advantage.
In Arboc, the opportunity cost of one unit of coffee is 4 units of wheat.
In Arbez, the opportunity cost of one unit of coffee is 6 units of wheat.
Arboc has a lower opportunity cost of producing coffee, so Arboc has a comparative advantage in the production of coffee.
7. Based on comparative advantage, Arboc should produce the good in which it has a lower opportunity cost compared to Arbez. Arboc has a comparative advantage in coffee production, as its opportunity cost of coffee is lower (4 units of wheat) compared to Arbez's opportunity cost (6 units of wheat). Therefore, Arboc should produce coffee.
Similarly, Arbez should produce the good in which it has a lower opportunity cost compared to Arboc. However, in this case, neither country has a lower opportunity cost for wheat production. Therefore, either country can produce wheat.
8. If the terms of trade are 2 units of wheat per unit of coffee, and Arboc has a lower opportunity cost of coffee production, Arboc should produce coffee. Arbez should produce wheat because it has a higher opportunity cost of coffee production.
9. If the terms of trade are 5 units of wheat per unit of coffee, and Arboc has a lower opportunity cost of coffee production, Arboc should produce coffee. Arbez should produce wheat because it has a higher opportunity cost of coffee production.
10. If the terms of trade are 6 units of wheat per unit of coffee, and Arboc has a lower opportunity cost of coffee production, both countries could gain from trade. Arboc can export coffee and import wheat since its opportunity cost of coffee is lower. However, Arbez may not gain as much from trade since its opportunity cost of coffee is higher.