Assume that it takes the US 150 units of labor to produce a table and 30 units o
ID: 1167514 • Letter: A
Question
Assume that it takes the US 150 units of labor to produce a table and 30 units of labor to produce a chair.
Assume it takes the Netherlands 100 units of labor to produce a table and 10 units of labor to produce a chair.
Assume that each country has 4800 units of labor and before trade, each country splits their labor evenly between chair and table production.
Assume that when the countries decide to trade, the country specializing in table production specializes in table production only.
Assume that when the countries decide to trade, the country that specializes in chair production uses 1000 units of labor for table production and the rest (3800 units) for chair production.
Assume that when the countries trade, there are a total of 15 tables traded at a rate of 7 chairs per table.
1)What is the opportunity cost for the US for the production of one table in terms of number of chairs?
2)What is the opportunity cost for the US for the production of one chair in terms of number of tables?
3)What is the opportunity cost for the Netherlands for the production of one table in terms of number of chairs?
4)What is the opportunity cost for the Netherlands for the production of one chair in terms of number of tables?
5) After trade, how many tables does the US consume?
6)After trade, how many chairs does the US consume?
7)After trade, how many tables does the Netherlands consume?
8)After trade, how many chairs does the Netherlands consume?
9)
Explanation / Answer
Opportunity cost: This is the amount of benefit foregone for sacrificing an opportunity.
1.
Number of table = {4,800 / (150 + 30)} × 150 = 4,000 tables
Number of chairs = {4,800 / (150 + 30)} × 30 = 800 chairs
Opportunity cost of producing on table = Number of chair / Number of table
= 800 / 4,000
= 0.2 chairs(Answer)